The latest broadcasts from major Western publications on the Chinese economy signal growing concern among experts about its trajectory. US observations have been consistent in highlighting serious risks to the global economy posed by China’s financial and real economy dynamics. The current signs point to a clear slowdown: real estate demand wanes, consumer spending drops, production and trade shrink, and youth unemployment climbs. Leading reporters note a buildup of unproductive investments, with urban housing vacancies around 20 percent and many new airports and rail hubs remaining underused. A prominent economist, Paul Krugman, has drawn parallels between China today and Japan during its 1980s bubble years.
International institutions and market researchers project a slower path for China. IMF analysts and the London firm Capital Economics estimate annual GDP growth near two to four percent in the coming years, a pace that could end the era of rapid Chinese poverty reduction that began with Deng Xiaoping’s reforms in 1978.
Caixin has highlighted the hidden debt burden carried by local governments, with estimates ranging from four and a half to ten trillion dollars. A substantial portion of municipal ventures lack the funds to service interest payments, raising warnings about financial stability.
How does this affect Europe?
In an interview, an asset manager from an international private investment fund commented that 2023 delivered one of the main economic surprises, with China failing to rebound after strict covid-era restrictions. The manager observed that China’s export-oriented model faced headwinds as Western economies retrench trade, and that the Eurozone, which has historically enjoyed strong commercial links with China, is already feeling the impact. The shift away from demand in China has translated into softer orders for European machinery and equipment, signaling that Western hesitancy in engaging with China could push both regions toward slower growth. Experts note that China’s demand for raw materials remains a key driver of global prices.
Another analyst, Kirill Komarov from a major investment house, points out China’s role as a major mineral resources consumer and its influence on world prices. He notes fluctuations in commodity prices over the last six months reflect weaker demand from advanced economies as well as weaker Chinese demand.
Ruble under attack
China’s status as the world’s second largest economy and a major importer of energy and other resources means slower growth there can weaken global demand for raw materials, affecting Russia’s export profile. A macro analyst from a leading firm observed that Russia’s foreign trade has shifted eastward, intensifying the link between China’s cycle and Russia’s energy export earnings. Bilateral trade rose sharply in the first half of 2023, with China accounting for a sizable share of Russia’s exports. Yet data also show a dip in China’s oil purchases in mid-year, a change that can influence the ruble through shifts in yuan inflows.
Independent voices warn that China’s slowdown could dampen global demand, potentially pressuring energy prices and complicating Russia’s balance of payments and currency strength. Yet some economists argue that the overall risk to Russia may be mitigated by its continued profitability in certain segments of the world market, even when prices are low. They expect employment stability to moderate the impact on Russia’s economy and view the risk of a sharp recession as limited in the near term. Still, a measurable drag on world prices could lead to a broader inflationary response and currency adjustments in Moscow.
At the same time, China’s construction slowdown feeds through to related sectors such as metallurgy and energy in Russia. Russian exports to China include metals, coal, and electricity, and those industries would feel the pressure from lower demand. Overall, observers agree that while risks exist for Russia, the situation remains largely within manageable bounds as markets adjust.
Yet some analysts emphasize that the public sector in Russia could play a stabilizing role. The notion that a weaker ruble might be cushioned by a lagged deflation in China is part of a broader discussion about how commodity prices, inflation, and currency values interact in a shifting global landscape. July price movements show a mixed picture, with consumer prices easing in China and producer prices declining for a sustained period, which could influence global inflation expectations and policy responses. In the longer run, deflationary trends in China might contribute to a slower global inflation path and enable central banks to recalibrate rates and support renewed growth cycles. In this scenario, some see a potential upside for Russia through energy markets and related sectors as global conditions evolve.