If China’s financial impact on the world economy were to disappear, what would change? According to a senior fellow at Yale University’s Jackson Institute of Global Affairs: everything.
Based on his research Stephen S. Roach writes the following.
A Chinese implosion
What if China’s economy does indeed come crashing down, with its growth rate plunging into low single digits, or even negative territory, as would be the case in most crisis economies? China would suffer, of course, but so would an already-shaky global economy....
Without China, the world economy would already be in recession. China’s growth rate this year appears set to hit 6.7 percent—considerably higher than most forecasters have been expecting.... Absent China, that contribution would need to be subtracted from the IMF’s downwardly revised 3.1 percent estimate for world GDP growth in 2016, dragging it down to 1.9 percent—well below the 2.5 percent threshold commonly associated with global recessions.
Then there are cross-border linkages with other major economies....
Australia, New Zealand, Canada, Russia, and Brazil would be hit especially hard.... China has transformed these economies, which collectively account for nearly 9 percent of world GDP.... Whenever China’s growth expectations are revised—upward or downward—their exchange rates move in tandem.... Needless to say, in a China implosion scenario, this baseline estimate would be revised downward significantly.
The same would be the case for China’s Asian trading partners... That is true not only of smaller Asian developing economies such as Indonesia, the Philippines, and Thailand, but also of the larger and more developed economies in the region, such as Japan, Korea, and Taiwan. Collectively, these six China-dependent Asian economies make up another 11 percent of world GDP. A China implosion could easily knock at least one percentage point off their combined growth rate.
U.S. and Europe
China is America’s third-largest and most rapidly growing export market. In a China-implosion scenario, that export demand would all but dry up—knocking approximately 0.2-0.3 percentage points off already subpar US economic growth of around 1.6 percent in 2016.
Finally, there is Europe to consider. Growth in Germany...remains heavily dependent on exports. That is due increasingly to the importance of China—now Germany’s third-largest export market, after the European Union and the United States. In a China implosion scenario, German economic growth could also be significantly lower, dragging down the rest of a German-led Europe.
Source: Read the entire article by tapping here: Without China