A slowdown in what is now, on some metrics, the world’s largest economy could be a mixed blessing, writes George Buckley.
Up until the 1980s, China hardly featured in trade with the G7. The country taking the largest proportion of its goods in the first half of that decade was Japan, thanks to its geographical proximity, with the remaining G7 nations each accounting for less than 1%.
That changed from the mid-1980s, as the US moved to 20%, according to recent figures. The UK was later to the party, with Chinese import penetration rising from just 0.5% in 1990 to 9%. It is no wonder that, on purchasing power parity terms, the IMF expects China to be worth close to a fifth of global output by the end of this decade.
China achieved its rise by focusing on trade and investment, at the expense of spending. But that is changing, and the transition to a more balanced economy has been responsible for the slowing in China’s growth rate. The government expects growth of 7% this year; other forecasters are less bullish and some believe reported growth overstates the true rate. Deutsche Bank’s (DB) economist for China is expecting a ‘mini hard landing’ – growth falling to below 7% in the first half of this year. To compare, growth averaged about 10% per year in the decade to 2010.
One reason for our view is that policy easing has not happened as quickly as we might have expected. Moreover, fiscal policy is not picking up the slack (China is in the midst of a fiscal contraction) and the property market is suffering.