A surging China saved the global economy from recession, but a slowing China may not consign it to a slump.
The world’s second-largest economy will grow 6.8 percent this year en route to 6 percent in 2017, the International Monetary Fund projects. That’s half the 14 percent of 2007 and well below the 10 percent of 2010.
The deceleration will certainly eat into global growth, given China now accounts for about 15 percent of worldwide gross domestic product. A slowing to 7 percent should be enough to reduce an already sub-par expansion everywhere by 0.5 percentage points, according to Capital Economics Ltd.
How it is slowing also matters, according to Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc. A shift from import-intensive industries such as real estate and corporate investment will hurt foreign trade partners.
“Import volumes have been very weak, thus affecting the rest of the world,” said Hong Kong-based Kuijs. Commodity producers such as Australia and neighbors in Asia seem to be suffering the most.
There are nevertheless some reasons for optimism to think that China will remain an engine for the world economy.
Firstly, it’s on course soon to pass $11 trillion in size compared with $2 trillion a decade ago. Andrew Kenningham at Capital Economics says that means it will still account for 30 percent of global growth in the next five years, higher than the 28 percent average since 2000. In dollar terms, it should contribute more than any other economy.
So it can grow more slowly, yet still provide plenty of lift. Another reason to not worry unduly is much of the slowdown has already occurred, and other economies kept ticking over regardless.
Weaker Chinese demand may also be welcome in some corners. With China a consumer of more than 10 percent of the world’s oil, commodity importers will be grateful for the slide in energy costs. Given importers typically spend more than energy producers, that should support expansion elsewhere.
Ding Shuang, head of Greater China economic research at Standard Chartered Plc, says the economy’s modernization will also help others. The U.S. will be one beneficiary as China requires more financial services, he says.
Apple Inc. certainly isn’t noting a slowdown, with iPhone sales in greater China exceeding those in the U.S. for the first time in the latest quarter. “The growth rate in China is significantly higher than most parts of the world,” Chief Financial Officer Luca Maestri told Bloomberg this week.
Policy makers also are now on the case, cutting interest rates twice and reducing the amount of deposits banks must keep in reserve. There are also plans to boost the market for local-government bonds and recapitalize policy banks so they can lend more to government-favored projects.
Such stimulus is one reason JPMorgan Chase & Co. economists are predicting a pickup in global growth to more than 3 percent in the second half of the year, from 1.6 percent in the first quarter.
For China and the world, the ideal may ultimately be a China that is cushioned for now and more sustainable over time after the credit-fueled runaway rates of the past decade.
“China’s policy easing should support short-term growth and provide upside to current forecasts,” Deutsche Bank AG economists wrote in a report this week. “Rebalancing the economy should make growth more sustainable and resilient in the long run.”