Readers Question: What would be the impact of a bust in China on UK and global economy?
China’s economy continues to break records with its break neck records. Depending which measure you use, China is likely to be the world’s biggest economy very soon. Yet, there is no guarantee that this impressive growth will always continue. How would the world economy be affected by a slowdown in Chinese growth?
China is the world’s largest exporter. Despite a slowdown in 2009, China now accounts for 10% of global exports. This is predicted to rise to 12% in 2014. (Chinese exports at Economist.com)
Many people forget but, China is also a significant importer. Chinese imports from the US grew 14% in 2009. It is true China has a large current account deficit over 6% of GDP. But, if the Chinese economy did stop growing and go into recession, the UK and other countries would see a fall in exports.
This fall in exports could lead to a fall in aggregate demand and lead to lower growth. For the UK, exports to China are still a relatively small % of total exports. Therefore, on it’s own, a slump in China need not cause the UK to go into recession however, it would depend on other factors affecting the economy.
When China Sneezes?
In the post war period, there was a well known phrase ‘when America sneezes – the rest of the world catches a cold’ – However, America is no longer the dominant economic superpower. Maybe China will the world’s talisman. The point is a slump in China could adversely affect world economic confidence causing a range of problems.
To oversimplify, China imports raw materials and exports cheap manufactured goods. If China did go into recession, demand for commodities such as oil and precious metals would fall. This would cause lower commodity prices. It would particularly affect commodity exporting countries like Australia and Canada. Of course, some countries would benefit from lower commodity prices.