The slowing down of the Chinese industry is not a problem that concerns the Asian country alone. Several countries, especially those which acted as suppliers of raw materials, that somehow became dependent on the impressive growth of China’s economy will also have to adapt to the current situation. In certain instances, some of these nations will even need to reinvent and improve their existing economies.
During the first quarter of 2015, the global trade volume plunged 1.5% and another 0.5 percent in the next 3 months. This rate of decline can be considered as the worst one in 6 years, and there is an ongoing debate as to why it occurred. Market analysts and economic experts have suggested various explanations, and though it may differ in some ways, the common factor is that they recognize the role of China in the extremely high growth of trade during the last 20 years.
With the abundance of cheap labor force in the Asian economic powerhouse, China was able to produce goods which they sell at competitive prices. Moreover, the country has even fully exploited this edge in the export market. For instance, more favorable tariff rates were used for imports, which are intended for processing and re-export—a business that is responsible for approximately 30- 50 percent of the total trade in China.
However, in recent years, it appears like this advantage is gradually fading away. By the end of 2014, the average salary in the Asian country was at around $770 per month. This figure is greater than the average salary in Romania and Russia, which are at $632 and $591, respectively.
Despite the rapidly growing domestic consumption in China, recent data suggest that it is expanding at a slower pace compared to the rate 5 years ago and is not fully substitutive for weaker exports. Concurrently, the government has been attempting to switch to a more services-driven growth. The overall outcome is that industry’s contribution to the growth of China has been declining.
It seems like any growth in manufacturing has been slumping completely. The official Purchasing Managers’ Index fell from 50 in July to 49.7 in the month of August. This decline suggests that output has petered out. A recovery could only be export-driven and the only fast way to do this would be to devalue the Chinese yuan even further.
This is unfortunate news for the countries that have excitedly helped fuel the Chinese boom with their own exports. Take for instance, South Africa, Australia, and Brazil, which have relied on their raw materials supplies to the Asian country.
Another country that is also taking a blow from the slowdown in China is South Korea, which primarily exports finished goods to the Asian economic powerhouse. Just this August, it reported an 8.8 percent year-on-year decline in shipments to China. By contrast, most countries in Europe were not significantly affected by the deceleration in China, since they have diversified their exports.
The countries which have heavily depended on China are outside the 20 largest economies in the world. For example, roughly 90% of the exports of Mongolia, 70% of Turkmenistan’s, and between 45-70% of the exports of Gambia, the Republic of Congo, and Angola goes to China. Obviously, a considerable decline in Chinese demand would be tragic for these overly dependent countries.
Surely, the export-driven model of China worked well for a while, as it led to rapid growth. However, on the downside, it messed with the country’s environment and transformed the economy into one that is reliant on foreign demand, which can be unreliable. Little by little, the said model is being dismantled and it is recommended for other countries which have somewhat developed their economic plans around it to start reconsidering and to prepare themselves for sluggish growth.