Despite the Chinese economy cooling off so far this year, the country's 7.5 percent year-over-year GDP increase in the second quarter still puts that of the world's other major economies to shame but it's also a far cry from the 14 percent rate of 2007. China's breakneck expansion and corresponding appetite for raw materials has been a major boon to commodity-producing countries over the past decade, while its shipments overseas of everything from clothing to electronics have made it the world's largest exporter. China even pulled ahead of the US earlier this year as the world's largest trading nation, and its increasing integration with other major economies is precisely what makes the prospect of a slowdown so potentially hazardous to the global economy's health.
Is China's More Leisurely Rate of Economic Growth Really so Dangerous?
The short answer is no. Credit Suisse's Economics Research and Global Strategy teams, led by Chief Economist Neal Soss, have analyzed the impact China's slowdown could have on the global economy. They reached a rather surprising conclusion: The improving economic picture in the US and Europe will have more of an impact on global growth trends than the tepid data coming out of China and Asia. The analysts also don't foresee a significant further slowdown in China's growth ahead, and the recent release of positive economic data, including a surprisingly large 10 percent increase in industrial production, underscored that forecast.
Consider China's Imports in a Different Way: The Numbers Change Dramatically
One of the biggest reasons a slower-growing China gives market-watchers pause is that the country of 1.3 billion people absorbs an enormous amount of the world's exports – China's gross imports account for 2.9 percent of world GDP, compared to 3.6 percent for the European Union and 3.8 percent for the US. When such a large appetite for goods and services flags, one might expect other economies to bear the brunt of it. But when you consider China's imports in a different way the numbers change dramatically: a more integrated global supply chain means that many countries, particularly China, simply import components of a product, assemble it in a factory and then re-export it to another country for further work or sale. China's value-added imports – in other words, the portion of total imports that stay in China and are sold to Chinese customers, rather than those that are assembled and re-exported – accounted for just 1.7 percent of total global GDP. That's about half the value of the US or European Union's value-added imports and just 50 percent larger than Japan's. "Domestic demand in the US and EU matters much more than Chinese demand on a global scale," Credit Suisse analysts wrote in a report.