Effect of China’s Economic Slowdown on Global Economy

Running head: EFFECT OF CHINA’S ECONOMIC SLOWDOWN
Effect of China’s Economic Slowdown
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1EFFECT OF CHINA’S ECONOMIC SLOWDOWN
Introduction
China is one of the world’s fastest growing economy. As recorded by International
Monetary Fund, economy has maintained an average growth rate of 10 percent in the past thirty
years. In terms of nominal Gross Domestic Product (GDP), China was the second largest
economy in the world. When considered in terms of purchasing power parity (PPP), China holds
the second position, only next to United States (Horton and Gauvreau 2015). The economic
growth of China is mainly contributed by the manufacturing sector that produces a large volume
output and export all over the world. However, since the decline in global oil price in 2014, there
is growing concern that the economy is entering into a phase of economic slow-down. The essay
analyzes the consequences of China’s slow growth on global economy.
Economic slow-down in China
Many economists have suggested that economic slowdown in China begins following
population aging and increase in wages to meet international standard. During the phase of
economic expansion, the economy benefitted from rapid growth of working age population. The
relatively lower wage along with growth of working age population fueled the growth of
manufacturing sector (Cashin, Mohaddes and Raissi 2017). The problem was that such changes
in the economy came at the expense of growth in service sector. The labor requirement in the
manufacturing sector however lessens overtime as new technology replaces manual labor.
China accounted only 7 percent growth in the fourth quarter of 2014 as against an
average growth of 10 percent in the past thirty years. The manufacturing activity in China fell to
the lowest level since the past six and half years (Glaser and Funaiole 2015). The main diver of

2EFFECT OF CHINA’S ECONOMIC SLOWDOWN
declining growth in China is shift of the economy from investment driven growth to that of
consumption driven one.
Figure 1: Growth in real gross domestic product of China
(Source: Statista.com, 2018)
Shift of the China’s economic activity and the resulted slow growth means a disaster in
global commodity market. China is the biggest importer of crude oil in the world. In consumes
one of every 13 barrels worldwide. China also is one significant importer of copper, aluminum,
steel and nickel (Lai 2015). The decline in China’s import demand of coal to a significant extent
causes a fall in global commodity prices. The Bloomberg commodity price index declined 25
percent in 2015.
Consequences of China’s slow economic growth