Industry and Trade in Asia: Impact of China's Economic Slowdown

This report examines the profound impact of China's economic slowdown on Asian industry and trade, highlighting its significance in the global economy. The analysis begins by detailing China's substantial contribution to world GDP growth and its role as a major export market for numerous nations. The report delves into the structural transformations within China, including the shift from investment-driven to consumption-driven economic growth, and the implications of this shift on global commodity prices. It explores the volatility in commodity markets, the impact on countries dependent on resource exports, and the effects on advanced economies. Furthermore, the report discusses the devaluation of the Chinese currency, the rise in debt levels, and the potential for a credit crisis. The conclusion suggests that while the slowdown presents short-term challenges, China's economic maturity may lead to increased commodity demand and renewed global growth in the long run. The report references several academic sources to support its findings.

Running head: INDUSTRY AND TRADE IN ASIA
Industry and Trade in Asia
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Introduction
Over the last few decades, rapid growth rate of China has made the nation one important
player in the global economy. With the rapid expansion of China’s economy since the last three
decades share of China in world’s GDP has increased significantly. China’s share in world’s
GDP increased sharply from 5% to 25% between 2005 and 2015. China is one main export
market for many developed and developing nations in the world (Cashin, Mohaddes and Raissi
2017) Integration of different nations with China makes China the one major driver of world
economic growth. For Australia, China accounts 35% of total export, for South Korea the export
share of China is 25% and that for Japan the share is 20%. China in recent years however is
undergoing a structural transformation that has hampered steady growth pace of the economy.
The economic growth rate in China in 2019 was only 6.1 percent. The dependency of world
economy on China makes global economy vulnerable to a decline in economic growth of China.
Discussion
Starting from a fall in global oil price during August 2014, there is a growing concern in
the world economy regarding slowdown of economic growth rate in China. Currently, the
economy of China is accounting a slower pace of growth compared to the average growth in the
last three decades. Based on the recent growth estimates, the future growth estimates for China
also seem to be very low (Xu 2019). Because of a below average growth rate of China, all other
nations depending on China experience a slow growth rate. For example, the expected growth
rate for South East Asian region was 5.8 percent in 2015 as against a growth rate of 6.2 percent
in the previous year. In September 2015, manufacturing activities in China fell to the lowest
level in the last six and half years. The decline in manufacturing activity in China is largely due

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to economic transformation from an investment dependency towards consumption dependency
for fueling economic growth. The figure below shows trend in real GDP growth rate of China
Figure 1: Real GDP growth rate in China
(Source: Data.worldbank.org. 2020)
The economic slow-down of China and shifts from investment to consumption have a
disastrous implication for world commodity price. China is one of biggest importers of global
crude oil produced with the economy consuming one in every 13 barrels of crude oil globally. In
addition to crude oil China is also a significant importers of copper with importing 45% of
world’s copper and 50 percent of aluminium, gold, steel and nickel (Balding 2019). The rapid
decline in China’s demand of imported coals resulted in a crash in global commodity market. In
2015, there was a 25% fall in Bloomberg Commodity price index.
The first implication of this fall in global commodity price is the increased volatility of in
the market which hurt the revenue of all the energy and commodity exporting countries across
the world. As a consequence of China’s slow down price of Brent crude oil increased from $43
per barrel to $54 within span of one week (Barro 2016). Price again declined in the next week

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adding volatility in the market. The volatility in the crude oil market hurts the confidence of
investors for making future investment. Big oil companies in the world such as Shell, British
Petroleum all are suffering from a fluctuation in revenue. The fluctuation and volatility in
revenue of these companies led to a panicked situation for investors encouraging them to pull out
money from many investments. The drastic fall in commodity prices in the global market is
mainly due to declining demand in China amid with other supply side issues (Li 2019). For
example, because of an increase in oil capacity of Iran and Iraq oil price declined by $10.
Despite this supply side factor, this is undoubtedly rapid decline in China’s demand leading to a
fall in crude oil prices.
The decline in commodity prices not only harm business firms but also impact the entire
countries. The impact is particularly prevalent for emerging economies that are rich in resources
and have experienced a significant progress in economic growth from the trade relation with
China. For example, in Saudi Arabia 90 percent of its total export are oil, in Nigeria earnings
from oil export account almost 85 percent of total government revenue (Lakatos et al. 2017). As
a consequence of lower demand from China government revenue in China has recorded to be 40
percent lower in 2015 than that in 2014. The impact of economic slowdown of China is not
limited to emerging economies only. Advanced countries such as Canada, Australia, South
Korea and others are also affected by a decline in China’s demand and that of a decline in global
commodity prices. In Australia 35 percent of total exports are minerals and that of 30 percent of
total export of Australia are exchanged with China (Fang 2016). Considering the phenomenon of
declining demand in China and fall in export revenue IMF has revised global growth figure from
3.8% to 3.3% and that to 3.1%.

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Besides the shift in economic structure from investment dependency to that consumption
dependency another uncertainty is arising from devaluation of China’s currency. Government of
China has attempted to devaluate the currency which led to a depreciation of renminbi against
US dollar by 2%. In contrast US dollar has appreciated due an anticipated increase in interest
rate by Federal Reserve (Qian, Liu and Pan 2017). With a depreciation of China’s currency
goods exported from China have become more competitive in the global market. However, since
commodities like crude oil are valued in terms of US dollar, appreciation of USD has made these
commodities more expensive. Because of increase in price of these commodities demand is
expected to decrease further. The inelastic demand of oil though prevents a sharp fall in demand,
however still demand is likely to decline.
The fall in commodity price may seem beneficial for net importing countries like United
State that currently is suffering from a deficit in current account. This allows companies to use
low cost commodities as inputs for generating higher profits and offering a lower price resulting
in a lower inflation in the nation. This however may be a bad thing because interest rates in
countries like UK and US are already close to zero with a continuously decreasing price level.
Central banks of these nations however are unable to increase to interest rate because of some
long held economic problem (Mohaddes 2016). As a whole, the slowdown of China’s economic
growth has prevented Federal Reserve to increase the interest rate and lowered inflationary
pressure because of a fall in commodity price and has harmed the developing and emerging
economies by lowering revenues.
The slowdown in China’s economic growth has come with another possible threat for
different economies in the world in the form of credit crisis. The combined household and
corporate debt in Asia increased reached to 200 percent of GDP in 2014 from 150% in 2007.

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Amount of debt for non-financial firms in the emerging and developing countries found to be
quadrupled from 2004 to 2014 as reported in the new IMF report (Lin, Morgan and Wan 2018).
In the same time the ratio of corporate debt to its GDP increased by 26 percent.
It is unlikely that economic growth of China will recover again to gain its previous pace
of growth. The shrining population and growing share of elderly population in China will decline
in the size of labor force and hamper productivity growth. The economic slowdown in China can
also be explained as period of maturity phase for the economy. The transition though reduces
demand for raw materials as China in shifting away from manufacturing to service sector, this
will increase median income in future. A large population of China has been found to become
wealthier which will increase discretionary spending of the population. The increase in income
will be more rapid as more people move to urban and add to an increase in productivity
(Yonghui, Liangxiong and Jianhua 2016). In this sense, it can be said that China’s economic
growth is not declining rather it is maturing to shift from an unsustainable growth depending on
manufacturing and investment comes with a debt pressure towards a consumption base economic
growth that will continue to increase.
Conclusion
China is one of largest economies in the world making significant contribution in fueling
global economic growth. Because of China’s integration with different countries across the
world global economy seems to be vulnerable because of the recent slowdown of economic
growth of China. From the discussion, it can be said that in the short run, decline in economic
growth of China has several adverse consequences both for advanced and emerging economies
in the form of decline in commodity price, decrease in revenue and lower inflationary pressure.
In the long run however as China completes its maturity phase there is possibility of increase in

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commodity demand globally which will help to recover global economic growth and so for the
advanced and emerging economic connected with China.

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References
Balding, C., 2019. What’s Causing China’s Economic Slowdown. Foreign Affairs.
Barro, R.J., 2016. Economic growth and convergence, applied to China. China & World
Economy, 24(5), pp.5-19.
Cashin, P., Mohaddes, K. and Raissi, M., 2017. China's slowdown and global financial market
volatility: Is world growth losing out?. Emerging Markets Review, 31, pp.164-175.
Data.worldbank.org. 2020. GDP growth (annual %) - China | Data. [online] Available at:
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?
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Fang, C., 2016. China's Economic Slowdown under Supply-Side Perspective. China
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Lakatos, C., Maliszewska, M., Osorio-Rodarte, I. and Go, D., 2017. China's Slowdown and
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