Impacts Of China’s Slow Economic Growth Free Essay

Introduction

For the past 3 decades continuously, China has enjoyed a stable mean of 10% growth rate in its gross domestic product. This economic growth transformed China from a rural society to 3 of the global largest economies with a first-rate transport system as well as an increased middle-class and urbane populace. The results of China’s upsurge includes its over $3.5 trillion in forex. However, from 2011 upwards, its economic growth in GDP decelerated to 7.4% in 2014 and further to 7.1% and 6.9% between 2015 and 2017 respectively (OECD, 2014). This economic slowdown does not come as a surprise considering a buildup of the effects of the financial crisis the world experienced in 2008. The subsequent growth rate of the Australasia and the Pacific region cumulatively reduced from 8.3% to 7.5% between 2011 and 2012 not to mention the current deceleration (PERKINS, n.d.). This paper analyses the impacts that China’s economic slowdown will have on its neighboring Asian and Australasia Pacific countries’ economic outlook. 

China’s slowdown is expected to slow further, signifying many implications for its neighboring countries of Asia and the Australasian Pacific region as well as the world at large. China’s slow growth can be ascribed to the decline in labor migrations as its big supply of labor reduced to increased urbanization of individuals aged 18-40 who now work in Chinese cities (PERKINS, n.d.). China’s export boom of 2000 – 2008 was cut short after the global economic crisis of 08’ which have then drastically reduced making it impossible for the giant economy not just to raise its large share of 9 percent of overall world exports but also to maintain that share.

In order to meet its housing and transport needs during their 3-decade gap, China had to undertake an investment percentage of 50 of its gross domestic product an achievement which saw its 2011 to 2012 3.8 billion accommodation space project that accommodated over 100 million residents (“Residential real estate,” n.d.). Since the gaps in housing and transport were met, that kind of investments has since produced lower returns. In addition, China’s slow growth is also ascribed to its weak household consumption, a trend that could be beaten in over a decade of increasing wage rate than the GDP (PERKINS, n.d.). With this slow growth, the government has moved in to enact policies meant to counter these eventualities in the economic implications not just for China but also its business-countries.

China is largely important to the Australasian-pacific countries’ economies especially Australia since it is its major export destination, a fast source of expansion in in-bound transnational tourism and migration as well as a being a source of Australia’s foreign investments. These impacts have been direct and indirect with almost an equal measure. The direct impacts have been by capital flows and Chinese investment in the Australasia’s business markets while the indirect impacts have been the impacts on the broad economic view (Biswas, n.d.). Therefore, China’s slow growth will result in direct impacts as the credit markets of Australasian-pacific countries will be upset and indirect if a total financial crisis occurs, then it would have dire effects on these countries’ economies respectively.

The degree of impact, however, will be dependent on worldwide investors’ swings against the Australasia-pacific countries as well as the degree of sustainability of their economic progress (Zeilstra, n.d.). Some property developers have already reported big capital flows into Australia as China’s economic slowdown has become uncertain and they have asserted that this will increase in a medium-haul. On the long-haul effects, the free trade agreements (abbreviated as FTA) signify increased commercial and capital flows as the Asian country seeks to seize the opportunity presenting itself (Connett, 2014). The Australian economy has expanded in the last two decades owing to the strength of China’s economy as well as indirect financial stimulus and partnerships with China which drove a strong demand for Australia’s products as well as investments in mining industry before the global financial crisis. 

Impacts on Australian economy

In particular to Australia, the three major sectors that China’s economic slowdown will have on the Australian economy include exports, tourism and China’s foreign direct investments in Australia. The tourism sector in Australia has reduced its prospects in the recent times, since the Australian Dollar has gained strength thereby reducing influx of domestic tourists and increasing outflow of international visits, however, with this, an influx of China’s tourists has grown steadily in the past half a decade as they spent over 5.3 billion between 2013-14 (Warner, 2015). Therefore, with China’s economic slowdown, Australia will enjoy a massive influx of Chinese tourists aiding Australia’s low-market stake.

China has been the biggest Australian export destination since 2008 and rising from just 15 percent to almost 33% of all of Australia’s exports (Warner, 2015). This rise in Chinese and Australian export programs reduced the shares of other partners of Australia. The major export products are iron and core. The slow growth in China’s economy has seen sharp reductions in prices of products such as iron ore and since other Australian partners reduced their market share, this has had direct effects on the Australian economy. This decline in bulk products has affected investors’ sentiments on Australia which indirectly has resulted in the depreciation of the Australian dollar (Drysdale, 2014). However, it is argued that The Australian export products drastically reduce but rather will be gradual thus Australia’s local investors would have time to chip in.

In the current years, China’s foreign direct investments in Australia on agriculture, natural resources, and housing projects have only been second to the US as 2012-13 reports from the Foreign Investment Review Board indicated that over $16 billion of China’s investments are in Australia (“Residential real estate,” n.d.). With China’s slow growth, these direct investments have reduced in the recent past. These wake of economic affairs saw Chinese and Australian governments sign an FTA in 2014 that sought to allow nearly all of Australia’s China-bound exports not to be tariffed, including a slow phasing on agricultural products. The mining products including iron ore are also planned to be cut (Warner, 2015). The commodity exporters from Australia also stand to benefit from preferential access to Chinese sectors as well as lesser stringent Foreign Investment Review Board of Chinese investors in Australia. Despite the Chinese slow growth, the Australian capital markets are stable due to the high asset pricing in Australia.

However, China’s economic slowdown has direct effects on property markets as well as indirect impact by increased resource demand by an increase in social class and Australian economy would highly benefit directly also it will receive higher migrant intake given its sparse populace (Warner, 2015). Along the other Australasia-pacific countries, China’s newly adaptive coined “One Belt, One road” which seeks a fresh innovation and production changes planned that will result in value-added products as opposed to China’s former low-cost productions. This initiative also aims at achieving a new infrastructure funding for Asia-pacific nations (Biswas, n.d.).  With the requisite changes that the Chinese government has put in place to counter the effects of its slow growth, the Australasia-pacific region has registered a resilient economic stability increasing gradually but not with the same fervency as before (Johnston, 2015).

The other indirect impact on Australasian-pacific countries is the resulting slowdown in the global commerce as a result of China’s reduced export demand according to OECD’s recent report. In the 3rd quarter of 2012, the economies of these countries which had been stable in double digits decline and was attributed to individual countries counteraction of new economic policies meant to protect themselves against China’s slowdown in economic growth. Many monetary and funding policies have been enacted especially those seeking to engage all sectors of the economy in the recovery processes for the whole Australasian-pacific region (OECD, 2014). With such changes, their economies will be indirectly resurfaced by an increase in the ASEAN local demand of products within those countries.

As such, a stable economy in these regions is expected as a prospect of 5.9 percent growth has been forecasted in the Asian countries. In addition, the other largest economies; the US, the Euro region, as well as Japan have cumulatively been envisaged to grow thereby China’s slowdown has opened up new avenues for produce from the Asian countries (Bank, 2017). The Asian-pacific countries in spite of the vulnerable worldwide trades that have resulted from the Chinese economic slow-growth are predicted to be the fastest-growing bloc supported by China’s recovery plans such as Silk Road Fund that will ensure a conceited growth in these economies.

Conclusion

In conclusion, while Australasian-pacific regional bloc have continually depended on China for commodity exports, tourism, mining, capital flows, financial aids, property markets as well as FDI, China’s slow growth has had both positive and negative effects, as it has opened up these countries for global trades as well as make them destinations for investor swings that are aimed at Asia but not the susceptible economy of China. However, the current bilateral treaties for FTAs and plans for an ASEAN development will soon bring these double-economy growing nations to their former global space (Fang et al., n.d.). FDI from China due to its strategies are not expected to change and thus countries trading with China as well as the Australasian-pacific region will not change much.