China’s Falling Growth Rate: Why US Couldn’t Care Less

  • SumoMe

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China’s roaring economy for years has pulled much of the rest of the world with it; soaked up oil, iron ore and other commodities from developing countries and autos and luxury goods from Europe. But its role as a global engine is now fading as its economy has begun showing signs of slow down. Many other nations will be hampered as of this downing economy, according to the economists. An Associated Press survey of 30 economists has found that 57 percent of them expect China’s decelerating economy to restrain growth in countries like Brazil, Chile, Australia and South Korea.

A notable exception is the United States, which the economists see as largely insulated from China’s troubles.

China’s once-explosive growth has slowed in part because of its government’s efforts to restrain its speculative real estate sector and shift its economy toward consumer spending. China’s economy expanded 7.3 percent in the third quarter from a year earlier, its slowest pace since 2009. A growth rate above 7 percent would be the envy of most major economies. But for China, it marked a sharp slowdown after three decades of double-digit expansion.

Last week, the Conference Board, a business group, forecasted that China’s growth would slump to 4 percent by 2020. China’s deceleration is likely to have a rippling effect around the world. Brazil and Australia are now making a lesser sale of iron ore, a key ingredient in steel, as China’s construction boom slows. Chile is exporting less copper to China; Indonesia is selling less oil and lumber.

Although US automakers, particularly General Motors make a huge sell in China; but nearly all the cars are built in China and do not contribute much to the US economy. That’s true of many other US goods sold in China, including electronics. As a result, weaker sales in China wouldn’t hurt the United States too much. Capital Economics, a forecasting firm, calculates that only 6.5 percent of US exports go to China— equal to just 0.9 percent of the US economy.

Most of economists think the US economy can expand at a respectable annual rate of 2.5 to 3 percent through next year even if Europe, Japan and China stumble. The United States has been recovering steadily from the Great Recession even as China’s economy has weakened. China was growing at a double-digit pace in 2010, when the US was still struggling to escape the recession but now, the US economy has expanded at a 4 percent annual pace over the past six months.

Still, if China’s growth does slow significantly, eventually it could diminish growth in the United States. China is a big market and sooner or later even the US will feel the downing economy’s impact.

Ratanpriya Sharma

Image Source [http://kashagan.today/wp-content/uploads/2014/10/Chinese-flag-kashagan.today_-938×535.jpg]

 

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