Now more than ever the economies of the world work together in tight concert. Economic reversals in one corner of the globe will be felt on the opposite side of the world soon enough. When it comes to a world-leading economy like China’s, the developments of the country’s internal economy will have global ramifications throughout 2016.
China is currently in a transitional stage when it comes to economic planning, and the country’s leaders are still adjusting policies to help them deal with the ongoing fallout from the global financial upheavals of the past few years. Heavy industry and real estate development are continuing to shrink, leading to reduced demand for both raw material imports and overseas investment.
The general consensus among financial experts is that China’s economy is going through a recessionary period, but the nature of the fall is universally characterized as a soft landing rather than a hard one. This primarily means that both internal and external markets should be able to adjust to changes as they occur without being thrown out of balance.
Chinese officials have announced that they believe their economy will grow by seven percent in 2016. This is down significantly from a high point of more than 10 percent growth back in 2010. However, no one watching China’s continued economic development expected its incredibly rapid pace at the start of the 21st century to continue indefinitely.
Most experts believe that the official prediction from China is significantly optimistic. Even very hopeful sources are pegging their own predictions at less than seven percent, with some falling below the sixth percentile. State Street Global Advisors – a major US investment firm – is expecting flat six percent growth from China at best, citing continued deflation and excesses in both manufacturing capacity and property inventory.
China’s Impact On The World Stage
As noted above, it’s been clear for some time that China’s major growth boom is over. The question now is how quickly its growth will shrink towards levels in line with global averages. Global economic growth for 2016 is projected to fall somewhere in between three and 3.5 percent. If China crashes to that level gradually over the next fifteen years, the world economy will easily be able to absorb the blow.
If the Chinese economy bottoms out too quickly, though, it will have serious follow-on effects throughout the world. Countries which rely on exporting to China will face severe consequences, and even those that buy Chinese exports — like the US — will have problems handling the fallout. Chinese companies still provide a very attractive proposition to nations looking to import goods, though, and continued demand for these goods will likely be the cushion needed to soften the blow of China’s decline.
All of the best economic forecasts predict continued growth in the Chinese economy throughout 2016. It will not grow as quickly as an optimist might hope, but it should not crash and burn in a way that could endanger the world’s financial stability. Fortunately, there are still global growth hotspots (e.g. India) that provide the world with the kind of expansive market opportunities that China had to offer five years ago.