A slowing Chinese economy being felt across the globe

China’s $18tn-plus economy is a key driver of global growth.
But expansion in the world’s second largest economy has already been sputtering amid sluggish consumer spending, a shaky property market, flagging exports amid a US drive for “de-risking,” record youth unemployment and towering local government debt.
The impact of these strains is starting to be felt around the globe on everything from commodity prices to equity markets.
China’s gross domestic product grew just 0.8% in April-June from the previous quarter, on a seasonally adjusted basis, data released by the National Bureau of Statistics showed on Monday compared with a 2.2% expansion in the first quarter.
A lot of the world’s jobs and production depend on China with its vast market and factory floors.
The IMF forecasts China will be the top contributor to global growth over the next five years, with a share expected to represent 22.6% of total world growth — double that of the US.
A main way China’s expansion has an impact on businesses across the world is through trade, and mineral-exporting countries such as Brazil and Australia are particularly susceptible to China’s infrastructure and property cycles.
After years of Covid restraints, Chinese travellers have yet to resume travelling en masse abroad, as their income and job confidence remains weak, hurting tourism-dependent countries.
With the risk of further interest rate hikes tipping the US into recession, the prospect has grown of the world’s two economic powerhouses slumping simultaneously, compounding the pain for everyone.
China’s economy has been struggling across a range of sectors.
Data released at the end of June showed manufacturing activity contracted again. Exports — a consistent support during the pandemic as Chinese factories rushed to fill US and European orders — have dwindled.
Since peaking at a record $340bn in December 2021, exports were down to $284bn in May as rising interest rates weigh on economic activity in the US and Europe, according to a Bloomberg report.
Hidden debt at so-called local government financing vehicles (LGFVs) poses another strain for some cash-strapped cities and counties. The $9tn of Chinese local government bonds that helped drag the rest of the world out of the 2008 financial crisis are a growing risk this time around.
The government attempted to crack down on heavily indebted real estate developers in 2020 to reduce the risk to the financial system. That pushed housing prices down and a number of weaker companies defaulted.
China Evergrande Group, the world’s most indebted property developer, posted a combined loss of $81bn in 2021 and 2022 and a rise in total liabilities in its long overdue results on Monday.
The People’s Bank of China cut interest rates in June, a traditional tool to help growth. The surprise move raised expectations for more monetary and fiscal stimulus.
Possibilities being raised include a further easing in property restrictions, tax breaks for consumers, more infrastructure investment and incentives for manufacturers, especially in the high-tech sector.
But as of early July, policy changes have been largely incremental, such as extending tax breaks for new energy vehicles through 2027.
The unemployment rate for 16- to 24-year-olds in China’s urban areas spiked at 21.3% in June, the third consecutive month above 20% and the highest level in official data going back to 2018. That’s roughly 7mn young people out of work.
The situation is only going to get worse, though, with almost 12mn college graduates expected to hit the job market this year.
Chinese authorities face a daunting task in trying to keep the economic recovery on track and putting a lid on unemployment, as any aggressive stimulus could fuel debt risks and structural distortions.
Altogether, the worsening dynamics threaten to thwart China’s momentum to surpass the US as the world’s biggest economy, which had been seen possible as soon as the early 2030s.