China’s troubles are the world’s troubles. Its bandwidth cannot be underscored – in 2014 it accounted for 38 percent of global growth. Its reach goes even further as China has invested in many emerging markets and fragile economies around the world that have become dependent on it for growth. Downturn in China will have far reaching implications. There are growing concerns that China could very well trigger the next global recession.
China’s economy is facing a variety of challenges:
- By providing short term solutions to stabilize its economy it’s also putting pressure on and increasing its debt bubble
- Diminishing returns on its stimulus efforts
- Bailouts and plunging shares in the stock market- efforts to ease the fallout from many years of borrowing are all taking its toll
- Putting a floor on plummeting shares is essentially another bailout on top of a previous one
A significant indicator of the widespread effect of China’s financial situation is the impact China’s slowdown is having on Singapore, an open and trade dependent economy. Singapore experienced a GDP drop of 4.6 percent last quarter, a decrease most likely linked to China. Singapore also experienced a 14 percent decrease in manufacturing from the previous three months; non-oil exports to China fell 4.3 percent in May, 5.1 percent in April and plunged 22.7 percent in February.
China’s impact on Singapore are certainly concerning as are the impacts on its other neighbors in the region which are reliant on a strong Chinese growth engine. Several countries in Asia have experienced economic slowdowns and decreased exports which have exposed them to risk thus making them vulnerable. With more than 40 percent of global growth coming from Asia (according to Deutsche Bank AG), further slowdowns in China’s economy would certainly have implications on global economic growth.