BOFIT Weekly Review 2016/19
Regional neighbours and commodity producers likely to suffer most from Chinese slowdown
The May issue of the IMF’s Regional Economic Outlook sees Asian growth slowing to 5.3 % p.a. for 2016 and 2017. Strong domestic demand should continue to counterbalance the weak trends in the global economy and lower Chinese growth. The IMF sees China’s GDP growth slowing from 6.9 % last year to 6.5 % this year and 6.2 % in 2017.
China’s significance for other countries has increased rapidly as its share of the global export market has risen from 3 % in 2000 to 9 % last year. Over the same decade-and-a-half, China’s share of Asian countries’ exports has increased from 9 % to 22 %. In addition to the direct impacts of trade, the IMF survey noted the indirect impacts through commodity prices and financial markets.
The survey reports estimates of the impacts of China’s structural shifts and slowdown suggest that a drop of 1 percentage point in China’s GDP reduces GDP of its Asian neighbours by 0.15–0.30 percentage points over the short run. The size of the impact depends on the nature of the affected country’s exposure to China. Countries dependent on Chinese investment (e.g. Taiwan, South Korea) will suffer more in the short run from China’s structural change and slowing growth than countries focused on serving Chinese consumers (e.g. New Zealand, India). Commodity producers have been hit by falling prices which, however, are mainly due to other factors than China. Indeed, only a few commodity-producing countries have seen significant declines in volumes of exports to China.
The impacts of China’s structural changes and slowing growth on countries outside the Asian region and countries not dependent on commodity exports will naturally depend also on how much their value-added production is linked to Chinese consumption and investment. The average impacts, however, are smaller than for Asian countries. China’s adjustments will also alter international production chains as it gradually replaces intermediate products manufactured elsewhere with its own production.
The IMF stressed, however, China must adopt a sustainable growth model. Over the long run, successful structural reforms will add to regional and global growth.