In the throes of global meltdown a few years ago, 10% per year average GDP growth in China acted as a salve for a world in economic pain.
Now that China's double-digit growth is beginning to slow down to a 7.5% annual rate while the developed economies continue to merely sputter ahead, the question is what impact that will have on the world economy, and who will prosper, and who will falter, from China's slower growth.
The Financial Times’ economics editor explores this question in an analysis published this week, offering reassurance on what might at first glance appear to be unmitigated bad news.
First of all, the Financial Times’ economics editor Chris Giles points out that slower growth today is worth more than more rapid growth in the past:
“Slowing and rebalancing in China might hurt some but the effects should not be exaggerated. When China started to grow at 10% a year in the early 1980s, its expansion was as valuable for the world economy as the U.S. growing at 1 per cent. It was nice to have but easy to ignore. Over a quarter century of phenomenal Chinese growth, if its economy expands by 8% today, it is the equivalent of the U.S. growing 4%.”
So at a 7.5% clip, China’s contribution to global demand is second to none, he argues.
Most vulnerable to the slowdown are commodity-exporting countries like Australia. Yet while China’s rapid growth and insatiable demand led to a commodities “supercycle” that saw its share of demand for nickel, for example, rise from 6% to 45% of global demand between 2000 and 2010, slower growth still means supply will have to increase to meet demand.
“So, for example, 5% growth in demand translates to an additional 420,00 tonnes of copper consumption,” Giles points out.
What’s more, not all commodities will face the same slowdown. China’s ambition to boost its people’s consumption away from its previous investment focus should be good news for oil producers (as Chinese buy more cars) and meat suppliers (as the Chinese progress toward a richer diet).
Indeed, PSA Peugeot Citroen, Ford and GM are among the car companies that are busy opening new auto plants in China, where the country’s 60 cars per 1,000 people remains distant from the EU rate of 500 cars, Giles writes.
Manufacturing is another mixed bag. Giles notes that German exports fell in the year through Q1 2013, but cites a survey of German businesses, a plurality of whom express confidence that conditions will improve in the balance of the year.
The luxury goods market has been hit especially hard, with Swiss watch exports, for example, falling 25% in the beginning of the year. But Giles cites encouraging news in other areas—such as British high end retailer Burberry’s double digit sales growth and estimates that the sector will see a slowdown that, while less than recent glory days, remains at a higher rate than other parts of the world.