Why we Need to Know What’s Happening with the Chinese Economy

Why we Need to Know What’s Happening with the Chinese Economy

Keeping up with the latest economic news may not be everybody’s idea of fun. In this article we explore the potential ramifications the recent economic downturn is likely to have on UK business.

Recent Developments with the Chinese Economy

China’s economy is in slowdown, not in recession but China is growing slower than previously predicted and slower than in previous years. Although China’s economy is still growing at over 4% this is far short of the target 7% of the Chinese government.

This slowdown has a knock-on effect on trading partners and the world economy as a whole; in particular we now look at the impacts on the UK economy.

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Factories in China are slowing down on production

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7 Impacts of China’s Economic Slowdown for UK Business

There are seven main impacts of China’s economic slowdown which have been detailed in this section:

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UK businesses will need to manage the impact of the slowdown of China’s economy

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1)    Reduced Demand for UK Exports

The slowdown of the Chinese economy is causing a reduction in demand for UK Exports; this will obviously hit UK exports to China the most, but will also impact the supply chain of exporters.

2)    Global Slowdown Effect

The Chinese economic slowdown is having a knock on effect throughout the world. Countries like Brazil, Australia and Canada are exporting fewer natural resources to China, which has a resultant impact on their local economies. Businesses exporting to countries impacted by China’s reduced demand may be affected.

3)    Reduction in UK Business and Consumer Confidence

A slowdown of the Chinese economy will affect UK business confidence in particular, especially with exporters. For importers though they are likely if anything to see a reduction in prices for Chinese goods. UK consumer confidence is likely to only be slightly dented as most UK consumers won’t understand what is happening in China.

4)    Fall in Commodity Prices

China’s massive economic growth over the last 20+ years has caused an insatiable appetite for commodities and natural resources. The prices of oil and gas, timber and metals have surged due to demand exceeding supply. China’s reduced demand is causing an excess of supply over demand and therefore falling prices around the world. This has been observed of recent times with the falling prices of fuel at UK petrol stations.

5)    Reduced Inflation

Although the UK has stable inflation (around zero %) the effects of the Chinese economic slowdown would be to reduce inflation further still! In particular the reduction in demand for commodities is causing a global reduction in commodity prices. Also, Chinese exporters are reducing their prices to sell excess goods.

6)    Fewer Chinese Students and Tourists

Businesses relying on Chinese students and tourists will be affected. As China suffers economic struggles there will be less cash to invest in holidays and education abroad.

7)    Increased UK Trade Deficit with China

An important affect for the UK government is an increase in the UK trade deficit. As Chinese goods reduce in price, UK companies will import more, due to the downturn the UK will export less. The net effect will be a high trade deficit between the UK and China.

Conclusion

All UK SME business owners should be continuing to watch economic news from China with great interest. The UK is more sheltered than many economies from the Chinese economy so the direct effect of a Chinese economic slowdown is less on the UK. However, other economies China trade with will be more affected, so there could be a larger effect on the UK from China’s trading partners.

 

Impact Credits: BBC News and Belle News

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