The Wall Street Journal, Caixin, and other Western economics publications in their recent publications cite the growing concern of the expert community over the state of the Chinese economy.
US Treasury Secretary Janet Yellen has repeatedly warned He explained the serious risks posed by the economic and financial crisis in China for the US and world economy.
Now the Chinese economy is showing clear signs of slowing down: the real estate market is falling, consumer demand is falling, production and trade are falling, and youth unemployment is rising.
Lingling Wei and Stella Yifan Xie as reporters Wall Street JournalA large number of unproductive investments have accumulated in China – 20% of urban housing is vacant, many airports and train stations built are almost unused. Nobel laureate Paul Krugman, in his column in The New York Times, compared China’s situation to Japan’s “bubble” in the late 1980s.
Analysts from the IMF and London-based consulting firm Capital Economics predict that China’s GDP growth will slow to 2-4% in the coming years. This could mean the end of the Chinese economic miracle that has lifted hundreds of millions of citizens out of poverty since 1978, when Deng Xiaoping’s reforms began.
portal Caixin He wrote about the hidden debt of local governments in China, which is estimated to reach $4.5-10 trillion. The vast majority of companies established by municipalities do not have the funds to pay interest. Experts warn that the situation threatens China’s financial stability.
How does this affect Europe?
In an interview with socialbites.ca, the asset manager of the International Private Investment Fund, Alexander Dushkin, said that China presented the main economic surprise of 2023, that its economy did not recover after the lifting of severe covid restrictions.
“This is because the Chinese economy has traditionally been export-oriented and now Western countries are actively reducing their trade relations with China as much as possible,” Dushkin explains. “The decline in the Chinese economy, in my view, is already reflected in the Eurozone, with which the Celestial Empire has historically developed close commercial and economic ties.”
According to Dushkin, we are witnessing an ongoing process of destruction against the background of the close relationship between the Eurozone and China; Weak orders from Europe are returning to weak orders for equipment and machine tools from the EU.
“So the reluctance of Western countries to work with China is pushing both economies into recession,” Dushkin said.
Another expert, Kirill Komarov, one of the leading analysts at Tinkoff Investments, emphasizes that China, one of the largest consumers of mineral resources, has a strong influence on world prices.
“From the dynamics of commodity prices, it is clear that the situation has been insignificant in the last six months, with prices falling due to falling demand in advanced economies and now China,” the analyst said.
Ruble under attack
China is the world’s second largest economy and the largest importer of many types of raw materials, including oil. Weak growth in its economy means weakening global demand for raw materials, including Russia’s exports. As FG Finam Head of Macroeconomic Analysis Department Olga Belenkaya stated in an interview with socialbites.ca, the impact of the economic processes in China on Russia has increased even more after Russian foreign trade has shifted to the “east”.
Trade turnover between Russia and China increased by 41% in the five months of 2023. Belenkaya says that according to some estimates, China accounts for 54 percent of Russia’s exports, and these are mainly composed of energy resources. According to the data of the PRC Main Customs Administration, in July, all of China’s oil imports decreased by 16.1% compared to June, while Russian oil purchases decreased by 23.2% compared to the previous month.
“The fall in China’s oil imports in July may be one of the reasons for the weakening of the ruble due to the reduced inflow of the yuan,” Belenkaya said.
Independent economist and financier Konstantin Tserazov believes that the slowdown in the Chinese economy could lead to a decline in global demand and an increase in recession. According to him, this could hit a double blow to Russia’s energy exports, especially oil.
“First, it will likely put pressure on world prices, and secondly, such a scenario will be fraught with increased discounting at which Russian oil is sold,” the economist adds.
Tserazov is confident that such a development of events will lead to a decrease in the income of Russian exporters, and therefore to a decrease in the supply of foreign currency on the Moscow Stock Exchange. In this regard, the ruble will be under pressure. The weakening of the ruble due to the decrease in foreign exchange earnings will create the risk of increasing inflation in the Russian Federation. In addition, the depreciating yuan will devalue Russia’s NWF, which will have a negative impact on the ruble exchange rate.
At the same time, the ongoing problems in the construction industry in China put pressure on related industries (metallurgy, energy, etc.). Russia exports industrial metals, coal and electricity to China, and these industries will come under pressure.
However, according to Komarov, although the slowdown in the Chinese economy carries some risks for Russia, the situation is generally under control.
Komarov explains: “As most of these companies remain profitable in the world market, even at low prices, an increase in unemployment is not expected.”
But there are also advantages
Dushkin believes that if a recession occurs in any market (China, USA or Europe), it will lead to an inevitable global response. It is also skeptical of global recession forecasts; The Russian economy remains stable thanks to state support.
“The Chinese economy may go into recession first, maybe later the Eurozone and the USA. As for the Russian Federation, the public sector plays an increasingly important role here. Employment turned out to be more stable and less affected by market cycles. The recession will undoubtedly have negative effects. But it can be said that the citizens of the Russian Federation are the most prepared people for such disasters. The expert said that those born in Russia should not be afraid of economic recession.
Economists do not rule out that the possible weakening of the ruble may be partially offset by deflation in China. In July, consumer prices fell by 0.3% year-on-year, while producer prices in the country fell for the tenth month in a row.
In addition, deflation in China may be positive for the global economy in the long run.
This will put pressure on global inflation so that world central banks can start lowering interest rates and start a new cycle of global economic growth. Tserazov predicts that this will lead to a rise in energy prices and that the beneficiary will be Russia.