Academic journal article ABA Banking Journal

How Much Does Slower Chinese Growth Matter?

Academic journal article ABA Banking Journal

How Much Does Slower Chinese Growth Matter?

Article excerpt

Some investors are all aflutter over signs of slower economic growth in China. But would a modest slowdown in the trend rate of Chinese economic growth have a significant detrimental effect on global GDP growth? After all, China is a much larger economy today than it was even a few years ago. Does it still need to grow at the same rate as it once did to have the same effect on global GDP growth?

Today, China is nearly as important to the global economy--in terms of the effect of its final domestic demand on global value-added--as Japan was in 1995. Although the rate of Chinese economic growth surely will be slower over the next few years than it has been over the past two decades, it likely will not suffer the stagnation the Japanese economy has experienced since the mid-1990s.

In order to have the same effect on global value-added as the United States, China needs to grow roughly two and one-half times as fast as the U.S. economy. Specifically, the 7.5% real GDP growth rate that the Chinese government is targeting for the next few years would give China the same global economic impact as an American economy that is growing at 3% per annum. Unless the Chinese economy completely crashes and burns, which we do not expect in the foreseeable future, the growth rates that it likely will register over the next few years likely will be strong enough to make a meaningful contribution to global GDP growth.

The rate of economic growth in China has clearly slowed over the past two years, and it is becoming increasingly evident that the days of supercharged, double-digit Chinese real GDP growth are probably a thing of the past. …

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