Presented by : SHOBHIT WADHWA MBA-IB(3RD SEM)

Agriculture: 9.2%Industry: 42.6%Services: 48.2%

Agriculture Industry Services0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Composition of the Chinese GDP

Percentage

Large-scale capital investment (financed by large domestic savings and foreign investment) and rapid productivity growth

WHY????

REASONS OF FAILURE• The law of large numbers (financial, rather than statistical) applies to nations as well as to companies: the

bigger an economy gets, the harder it is to keep growing at a fast clip. Growth of 7% this year for China would generate more additional output than a 14% pace did in 2007.

• Effective working population is declining.• Total debt (including government, household and corporate) has climbed to about 250% of GDP, up 100

percentage points since 2008.• The fundamental problem is that China has misused debt to grow far faster than income growth prudently

allowed. China’s impulse is to return to practices that have succeeded in the past, so it’s difficult to imagine it abandoning the three pillars of its past growth strategy: exports, business credit growth, and infrastructure spending.

• China will likely consider other growth channels: increasing consumer credit growth; ramping up other categories of government spending such as military spending; encouraging continued migration of rural populations to the cities.

EFFECT ON OTHER COUNTRIES• AUSTRALIA

• More than 30 percent of Australia’s exports are consumed by China. These exports include iron ore, coal, coal briquettes, copper, nickel, cereals, meat, wool, fur skins and hides; they could suffer as a result of the slowdown. With the global recovery still very slow, Australia may find it difficult to discover new markets for its increasing exports. Export prices of some of its commodities are already being impacted by the slowdown.

• As of late April this year, Australia has entered into trade treaties with Japan and South Korea in an effort to overcome the impact of China’s slowdown.

• Japan and South Korea • Japan exports primarily electronic equipment, machinery, pumps, medical electronic equipment,

automobiles, chemicals, plastics, copper, steel and ferrous products to China. This amounts to 8 percent of China’s imports and 20 percent of Japan’s overall exports.

• South Korea’s dependence on China amounts to approximately 29 percent of its export trade. Exports comprise electronic goods and components, medical and surgical equipment, mechanical equipment, engines, chemicals, oils, auto parts and products, steel products and copper.

EFFECTS(CONTD.)• AFRICAN DISTRESS

• The Chinese slowdown has the potential to damage the economies of Sub-Saharan countries, which are showing signs of growth on the strength of demand for minerals and other natural resources, predominantly from China.

• Commodity prices for goods such as copper and iron ore are already under strain, while coffee and cocoa prices will not be affected, as Chinese demand continues to grow strongly for these products.

• Ghana, Uganda and Rwanda are also benefiting from firm coffee and cocoa prices. The outlook for ores of iron and copper are not as encouraging as industrial production is not growing at the previous rate.

• Brazil• Brazil exports iron ore, copper, slag, wood pulp, sugar, rawhides, animal fats, meats. Industrial-input

materials such as copper and iron ores are likely to face a downturn. Exports to China constitute 19 percent of its total.

• SOUTHEAST ASIA• For Thailand, exports consist of machinery, electronics, fruits, nuts, vegetables, wood, rubber. Even though

these account for only 2 percent of China’s imports, they are critical for Thailand’s economy. Similarly, Indonesia exports primarily oil, minerals, rubber, wood, pulp, animal fats and electronic equipment, and may be moderately affected by the downturn.

• Malaysia’s exports to China account for 15 percent of its export economy. They consist mainly of oil, electronic-integrated circuits and palm oil. Singapore’s exports make up 1.5 percent of Chinese imports, and the country has a diversified portfolio.

• THE WORST SUFFERERS• Countries such as Mauritania, Turkmenistan, Sierra Leone, Gambia, Mongolia, Mali, Solomon Islands, depend

on China to purchase more than 50 percent of their exports. Their economies are much more vulnerable to the economic growth problems of China than most.

• A slowdown in China would dampen activity in the entire region, because of the size of the Chinese market and the close trade and investment links. Since it would likely be associated with commodity price declines, commodity exporters (Indonesia and Mongolia) would suffer a double blow.

• OTHER REGIONS• The US, Canada, the UK and France export aircraft, space equipment, machinery, electronic equipment and vehicles

to China. US exports to China constitute a significant 9 percent of its export trade and 8 percent of total Chinese imports.

• German exports account for 6.5 percent of total German export trade and 4.8 percent of overall Chinese imports. They comprise engines, machines, mechanical parts, pumps, automobiles, electronic and medical equipment, pharmaceuticals, spacecraft, copper, ferrous and steel products, chemicals. Along with Germany, Switzerland, too, is a major European exporter of machinery and equipment to China. Its exports constitute 3 percent of Chinese imports. Both Germany and Switzerland will be moderately impacted by China’s slowdown.

• The UK’s exports to China comprise spacecraft vehicles as well as mechanical, electronic and medical equipment. • Chinese imports from Russia and Saudi Arabia comprise mainly oil, and they won’t be affected by the slowdown.

• While the UK and some nations of Western Europe are optimistic about their own economic recoveries, the eurozone and the rest of the world have yet to share their optimism. The inevitable slowdown of China is a negative factor for most countries of the world, and only a faster pace of recovery in Europe and the US will play a stabilizing role. 

IMPACT ON INDIA• Commodities• Automobile Producers• Oil • Indian exports• Good investment opportunity • Any global slowdown can have an impact on India’s growth.

REBALANCING AND REFORM• Rebalancing is needed—China’s growth has been far too dependent

on investment by its businesses as compared to consumption by its households. But rebalancing is hard work that will take years, not quickly enough to reverse China’s decelerating growth.

• Reform of business practices is needed as well, but that too will be very difficult, and likely won’t happen fast enough.