Topic 2: CHINA’S ECONOMY: FAILING THE WORLD

China stands as the world’s second-largest economy by nominal GDP and has held the position of the largest economy by purchasing power parity since 2016. With a significant contribution of approximately 19% to the global GDP, China’s economic health is not just important for its prosperity but has far-reaching implications for the interconnected global economy. China’s slowdown in recent months as sent alarm across the world. Since China is the major importer of everything from raw materials to finished products policymakers across the globe are bracing their economies. Global investors

have already pulled more than $10 billion from China’s stock markets, selling mostly blue chips. Goldman Sachs Group Inc. and Morgan Stanley have cut their targets for Chinese equities, with also the warning of spillover risks to the rest of the region. According to IMF study, China’s growth rate rises by 1 percent point, global expansion is boosted by about 0.3 percent points. The research agency also stated that the Chinese deflation is not so bad for the global economy until the rest of the world's economies do not go into recession.

The few areas where the effect of China's slowdown can disturb the world economies:

  • Plunging Trade: Since China is the largest exporter, the deteriorating Chinese economy would hit hard on its supplier countries.
  • Deflation pressure: The cost of production in the past 10 months has declined which is good news for major importers of China like the US, which are already fighting hard with their high inflation.
  • Low tourism: Chinese are spending less on travelling to curb inflation, which adversely affects the tourism-based economies.
  • Currency Woes: Inflation has pushed the currency down more than 5% against the dollar this year. The depreciation in the offshore yuan is having a more significant impact on its peers in Asia, Latin America, and Central and Eastern Europe.
  • Bonds sinks: China’s interest rate cuts this year have pushed away foreign investors from the bond market. Overseas holdings of Chinese sovereign notes are at the lowest share of the total market since 2019.
  • Luxury Stocks Stressed: Major luxury brands around the world also feel the brunt on their earnings as they are sourcing materials from China.



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