Analyzing China’s Slowdown

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While the world reacts to China’s economic slowdown, the tone among the country’s top government officials remains calm. That’s because the growth rate (previously 10%, predicted to drop to 6.3% in 2016) has been intentionally slowed since 2012. A report published that year by the International Monetary Fund suggested that while China’s capital-to-output ratio was on track with similar emerging markets, a surge in investment over the past decade could lead to a dependence on external funding.1 The Chinese government has since been crafting an economic “soft landing”, rather than face a sudden crash.

China has an important role as a buyer of oil and other commodities, and the slowdown has been a factor in the decline in the prices of those goods.”2

Given that China’s economic buying power is approximately $10 trillion and its purchasing power parity has already surpassed that of the U.S., measures currently needed to reduce the possibility of a crash are not expected to have a lasting impact on global trade. In the short term, however, the world’s largest economies are likely to experience commodity price fluctuations and a shift among employment rates in the manufacturing sector.

Ethan Frederick GrantAnalyzing China’s Slowdown

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