There are strong indications that the Chinese economy is slowing down after thre
ID: 1188657 • Letter: T
Question
There are strong indications that the Chinese economy is slowing down after three decades of rapid growth. Its rapid growth transformed not only China’s own economy but also had a huge impact on other economies in Asia and the world. China emerged as the ‘assembly center’ of production networks and has played a major role in the deeper integration of economies in this region.
Clearly a Chinese slowdown will have major impacts on the economies of this region. Also note that the Chinese slowdown is happening at a time when the global economy, including the major OECD economies, is facing difficult times. discuss the implications of the Chinese economy slow down on a selected country's(asian) economy; except vietnam
Explanation / Answer
The slowdown in China is a product of the broader breakdown of the global economy. The frenetic levels of growth in China were an expression of the decay of world capitalism—the declining rate of profit in the advanced economies and the growth of financialisation and parasitic speculation rather than production. Investment flooded into China transforming it into a huge cheap labour platform and boosting demand for commodities, parts and capital goods from Asia and around the world.
The Chinese regime only maintained high levels of growth following the 2008 global economic crisis with a massive injection of cheap credit and stimulus measures, which only fuelled frenzied speculation in property and shares that is now unraveling. Stagnation in Europe and Japan and slow levels of growth in the US translate into falling Chinese exports and manufacturing activity and consequently slowing demand for imports from the rest of the world.
An Asian Development Bank update in July cut its growth forecast for developing Asia—which is higher than across global emerging economies—from 6.3 to 6.1 percent. For South East Asia, the figure fell from 4.9 to 4.3 percent, weighed down by lower than expected outcomes in Indonesia, Singapore and Thailand.
All of the Asian economies, including developed economies such as Japan and South Korea, are heavily dependent on China. For most, it is their largest trading partner. The present web of economic relations centered on China emerged in the wake of the 1997–98 Asian financial crises. The Asian “tigers,” which had exported directly to the US and other advanced economies, were integrated as suppliers for Chinese manufacturing. The proportion of exports from the rest of Asia to China has jumped from about 8 percent two decades ago to 13 percent. In the case of Indonesia and Malaysia, the figure has more than trebled. For Japan it shot up from 5 percent to 18 percent.
South Korea: Economic growth in the second quarter was just 2.2 percent. The country’s exports plunged by 14.7 percent last month, year-on-year, the biggest fall since the 2009, and eighth successive monthly decline. HSBC analyst Frederic Neumann told the Economist that the August fall was “pretty serious” as South Korea had “long been a reliable bellwether” for global trade.
Japan: The latest figures released yesterday showed that the Japanese economy, the world’s third largest, contracted in the second quarter by an annualized 1.2 percent with predictions that it will do the same in the third quarter. Exports to China, Japan’s largest export market, fell by 10.8 percent from January to June. Business investment fell by 3.6 percent in the second quarter.
India: The economy expanded by 7 percent in the second quarter, fuelled not by exports or investment, but a growth in consumer spending. Many analysts, however, question the official figures. Crisil, a Mumbai-based ratings firm, forecast that private investment in 22 large industries will fall by 8 percent for the year ending next March.
Indonesia: The largest South East Asian economy grew by just 4.7 percent in the second quarter, the slowest pace in six years. Exports declined with falling commodity exports to China. The value of the rupiah has hit its lowest level in 17 years amid fears about the country’s low level of foreign reserves. The Jakarta Composite Index has fallen 13 percent since its April high, another indicator of investor concern.
South East Asia: Other countries are also being hit by falling exports leading to falling growth rates. Malaysia grew by just 4.9 percent in the second quarter with exports down by 3.7 percent, year-on-year, with falling demand from China for crude oil and palm oil. The ringgit is at its lowest level since 1997. Thailand expanded by 2.8 percent in the second quarter, propped up by a continuing influx of tourists. Singapore ’s economy contracted sharply by 4 percent.