china-economy1The Chinese economy is the second largest in the world and it is fair to say that every economist in the developed world awaits with anxiety the release of every government report concerning the growth rate of the Chinese economy. In order to export so aggressively, China needs to import a lot of raw materials. China buys everything, and at present, its imports are supporting the whole of the world’s economy, such as it is.

For commodity countries like Australia and New Zealand, the health of the Chinese economy is crucial to their own. The Aussies and Kiwis have a raw materials economy, and thanks to proximity, China is their number one export market. The slightest slowdown in the rate of growth of the Chinese economy will certainly register with these two nations.

China is a big buyer of food stuffs and raw materials from the U.S. and it imports energy products from Canada. It buys minerals from South Africa as well as South America. There is almost no place on earth that does not have a trading relationship with China, and a significant slowing of exports to it can put pressure on an already weak global economic recovery. China has an aggressive free market economy that is still managed by old-line party officials within the central planning offices of the government. Until the financial meltdown of 2009, we could reliably count on Chinese growth to come in at 9 percent or better year-over-year without any help from the government. Lately, policy makers had to promise the rest of the world that they will not let their growth rate dip below 7 percent.

The question is how can they manage to enforce this? They do have the weapons in terms of extraordinary monetary reserves, and we can assume that they are prepared and willing to make direct investments into infrastructure and public works projects that will likely fuel continued domestic spending. This should keep the imported goods flowing for now, but the question on the table remains. What will happen to the global economy if and when China slows down and the interventions stop working?


Tags: , ,