If China falters, don’t smirk
WASHINGTON — After watching China narrow the U.S. lead as the world’s largest economy, Americans might be tempted to cheer signs that the Chinese economy might be stumbling.
Any schadenfreude would be short-sighted.
In an interconnected global economy, bad news for one economic superpower is typically bad news for another — even a fierce rival.
“It hurts,” said Mark Zandi, chief economist at Moody’s Analytics. “China is the second-largest economy on the planet. If growth slows there, it affects everybody.”
Zandi estimated that each 1 percentage point drop in China’s economic growth causes as much damage to the U.S. economy as a $20-a-barrel increase in oil prices: It shaves 0.2 percentage point off annual U.S. growth.
That isn’t catastrophic. But to regain its full health nearly five years since the Great Recession officially ended, the U.S. economy needs whatever help it can get.
A sharp slowdown in China threatens the 28-member European Union, which outweighs even the United States if measured as a single economy. China is the EU’s second-largest export market behind the United States.
A stream of economic news from China has been rattling financial markets. Chinese manufacturing slowed in April for a fourth consecutive month. A Chinese lending bubble, driven by overbuilding, is stirring alarm. China’s growth in the January-March quarter slowed to 7.4 percent compared with a year earlier. It was its slowest quarterly growth since the 2008-09 global crisis.
For most economies, 7.4 percent growth would qualify as explosive. The U.S. economy hasn’t grown as fast as 7 percent since 1984. But for China, a still-developing economy that clocked double-digit growth through much of the 2000s, the latest figures qualify as a slump.
And Americans and Chinese are linked ever more tightly economically.
They buy each other’s products, invest in each other’s markets, visit each other’s tourist attractions. U.S.-China trade in goods last year totaled $562 billion. China is the United States’ second-biggest trading partner and the No. 1 source of U.S. imports, according to the Congressional Research Service.
• The number of Chinese visitors to America jumped 23 percent last year to 1.8 million. And the Chinese spend an average of about $6,000 a visit — more than tourists from any other country. “Shopping is the No. 1 activity for Chinese tourists,” said Jolin Zhou of Sunshine Travel, a Boston travel agency that specializes in Chinese tourists.
• Chinese investment in American businesses, factories and real estate — tangible things, not including stocks, bonds and other financial instruments — has gone from virtually nothing a decade ago to $14 billion last year, according to the Rhodium Group, a consultancy. More than 70,000 Americans work at Chinese companies in the United States, up from almost none in 2000.
• U.S. exports of goods to China have doubled since 2006 to a record $122 billion last year. In 2013, U.S. companies earned a record $9.7 billion in China.
China’s economy is slowing as it shifts away from growth based on exports and investment in real estate and factories and toward growth fueled by consumer spending. The country is contending with a surge in debt fueled by loans from state-owned banks. Outstanding credit has surged from the equivalent of 130 percent of China’s economy in 2008 to 200 percent last year, according to Capital Economics.
In Europe, companies are vulnerable to a further slowdown in China because of how much their trade there has expanded. China is especially key for Germany’s three luxury automakers — Daimler’s Mercedes brand, Volkswagen’s Audi and BMW. China is now a far larger market for BMW than is the United States.
Still, American firms see lucrative opportunities and are betting that Chinese authorities can continue to manage a healthy pace of growth.
“In China’s case, the car was driving 80 miles an hour; now it’s at 60 miles an hour,” John Faraci, CEO of International Paper Co., told analysts in February. “It feels slower, but it’s still pretty fast growth.”