Potential China crisis

Nia Williams

May 12, 2015

Tony Ward is the chief executive of Clayton Euro Risk

The completion of the UK General Election, combined with encouraging signs that the UK economy’s disappointing GDP growth for the first quarter of 2015 was just a blip, it seems that things are looking pretty good for the British economy. That’s before the European referendum kicks in and the chance of a ‘Brexit’ scuppers this hard-won economic stability!

My attention, however, is focused away from home, turning overseas to assess what’s happening in China. There are now an increasing number of questions over its economic boom, with growth last year slowing to 7.4%, the lowest annual increase in 24 years – well below the rate that the government had targeted for 2014. Recent trade figures also make grim reading, revealing that exports faltered last month dropping to 6.4%. 

What’s really worrying me is the rapidity with which the slowdown is occurring. The fall in exports came after a 15% drop in March. Coupled with this news, imports dropped by 16.2% compared with a year ago, a significant fall.

This raises fears not just for China, but for the rest of the world. China has been the biggest driver of global growth since the financial crisis.

So what’s to happen to the world’s second biggest economy? I’m certain that the authorities will intervene to drive another round of stimulus. In fact just yesterday China cut its benchmark interest rate again as the country’s leadership attempts to boost its struggling economy. If this has little impact I would expect them to step in again in an attempt to re-ignite economic growth. So watch this space.

I think, however, we need to watch closely the fortunes of our Chinese counterparts. Any further slowdown would be deeply worrying and would lead to tangible repercussions to economies throughout the rest of the world.

While political machinations in the UK have drawn our gaze towards Scotland and our role in Europe, our future may actually be taking shape on the other side of the globe right now.

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