The year of 2018 is a challenging year for China, and this can be seen in several aspects. It is clear that the growth rate has declined; at 6.6% of the growth rate has reached its lowest level in 29 years. China has also felt the impact of the trade war initiated by the United States; its trade, investment, technology exchange, and "going out" environments are all deteriorating significantly. From the enterprise level, only state-owned enterprises (SOEs) are profitable in maintaining the overall growth, while private enterprises generally face difficulties in their operations; a few competitive Chinese companies such as Huawei have been collectively rejected and suppressed by the West.
There are still no signs that these situations will show improvements in 2019. It seems that one can only conclude that China's economic growth will face greater challenges in 2019, and the external economic environment will see more difficulties.
Hence, China should have a more comprehensive and systematic understanding of the overall picture and take countermeasures and proactive actions to reverse the passive, constrained situation.
It is a fact that China's 6.6% GDP growth rate in 2018 was the lowest in 29 years. With the huge volume of the Chinese economy, a 0.1 percentage point slowdown is equivalent to a reduction of the economic scale of RMB 90 billion. However, there are still some fundamental benefits to have a huge economic volume. When the market is large, it would be difficult to be destroyed; there will room for growth and has big impact on the global economy. From a systemic perspective, the size of the economy is the most basic "hard power" to measure economic influence.
Compares with when it first joined the WTO, the proportion and influence of the Chinese economy in the global economy has changed a lot. In 2001, China's GDP was about US$ 1.34 trillion, accounting for just 4% of the global economy. By 2017, these two figures were US$ 12.24 trillion and 15.4%. In the same period, the global share of the U.S. economy fell from 31.8% to 24.4%. This also means that over the past decade or so, the contribution of China to the global economy has increased, while the U.S. has decreased and becomes relatively smaller.
In the past, the U.S. could be likened as the only sun in the global economy solar system, other countries were like the planets was affected by the gravity of the U.S. economy and revolved around it. The situation now is rather different, and the Chinese economy has gradually grown into another rising sun in the celestial realm of the global economy. Stephen Jen and Joana Freire of Eurizon SLJ Asset Management found out that this shift was reflected in the 2008 global financial crisis. Between 1989 and 1998, the U.S. had a 40% impact on global average GDP, and by 2008, that number had shrunk by half. The agency also found through quantitative calculations that China's current influence on the world is equivalent to the sum of the United States and the European Union; the total GDP of China's in the past decade has increased by US$ 9 trillion, almost equivalent to the sum of the increase of United States (US$ 7 trillion) and the European Union (US$ 2 trillion).
The concept of "exposure" in financial risk management can be used to measure the mutual influence and dependence of the global economy. In the globalization process from China's accession to the WTO until 2018, the correlation between the global economy and the Chinese economy has greatly increased; no matter China is a "world factory" or a consumer market, it is closely tied with advanced economies with higher levels of globalization and multinational companies.
NVIDIA, Caterpillar and Apple, which just announced their revenue forecasts this week, are all affected by the slowdown in the Chinese market in 2018. Semiconductor manufacturer Nvidia lowered its revenue forecast for the fourth quarter of the 2019 fiscal year by 18% to US$ $2.2 billion on January 28, saying that the deterioration of the macroeconomic environment has affected the demand of consumers in the quarter, especially the impact of China. Caterpillar, which is considered to be a global economic barometer, also announced the performance of the largest miss since the financial crisis on the same day. One of the major reasons is the decline in sales in China and unfavorable exchange rate fluctuations. Apple's fourth-quarter revenue report for the 2018 year showed that sales in the Chinese market fell by nearly 27% year-on-year, the largest decline in major markets.
As Jen and Freire pointed out in the relevant report, Europe's economic "exposure" to China is much larger than that of the United States or the rest of the world. Studies show that between 1998 and 2008, the impact of the Chinese economy on the EU and the U.S. economy was 21% and 23% respectively; in 2009-2018, the impact was 36% and 16%, respectively. Due to the high correlation, China's economic slowdown may become one of the factors dragging down the region and the euro in the short term. Mario Draghi, President of the European Central Bank said recently that the risk of economic growth prospects in Europe has been "moved to the downside", and that China's economic slowdown is a major source of weakness.
Other information known to Anbound also shows the impact of China's slowing economic growth on other economies. According to the scenario of Oxford Economics, under the current economic correlation, it is assumed that China's economic growth rate in 2020 will drop sharply by 2%, and the growth of the U.S. economy will slow down. The impact on various economies in Asia in 2020 will be the biggest, and the impact of the United States and the European Union is relatively small. Singapore slows down by 1.9%, Hong Kong 1.5%, Russia 1.4%, South Korea 1.2%, Taiwan, China 1.1%, Saudi Arabia 0.8%, 0.65% in Indonesia, 0.6% in Thailand, 0.55% in Brazil, 0.52% in India, 0.5% in Malaysia, 0.48% in Japan, 0.4% in South Africa and Australia, and about 0.3% in both Mexico and the Eurozone; the U.S. and the U.K. are both about 0.2%.
It can be seen that the condition of China's economy has reached a level that can significantly affect the global economy. This means that the world economy has been tied together in the process of globalization. Even the United States and the European Union, which rank first and second in the global economy, are unlikely to escape from this. Therefore, the so-called pessimism of the Chinese economy is only relative in the global context.
Final analysis conclusion:
Globalization has tied the world economy together, and the condition of China's economy has strong relations with the global economy. The so-called pessimistic situation faced by the Chinese economy is also relative in the context of the global economy. In the next few years, the most important task for China is to maintain stable domestic economy structural transformation and global economy adjustment.
