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The World’s Biggest Economies Are About to Feel the Impact of China’s Slowdown
Perspective | 24 June 2015

Emerging markets and commodity suppliers have grappled with reduced demand from China as a property downturn weighed on the world’s second-largest economy.

U.S., Japanese and German exporters did better, supplying capital goods like machines that China still demanded. That may soon change, according to a study of global exposure to China by UBS Group AG economists Donna Kwok, Wang Tao and Jennifer Zhong.

“As the multiyear Chinese property downshift continues to unfold beyond this year, we may see a longer-term decline in China’s appetite for foreign industrial imports,” the analysts wrote in a report June 22.

“Commodity, reprocessing, and developed country exporters alike should brace themselves for the impact of weakening China demand this year, irrespective of whether U.S. or EU imports pick up.”

That’s not good news for a world economy increasingly reliant on China.

China quadrupled the number of countries to which it was the biggest export market in the decade to 2014, the UBS analysts wrote. In the same period, the U.S. almost halved the number of countries for which it held the same title.

In terms of exports as a share of GDP, nearly all countries UBS covers saw their China exposure rise; some doubled — Japan, South Korea, U.S., Brazil, Canada, Chile — while some tripled — Germany, the EU — and some even quadrupled, like Australia.

For commodity exporters including South Africa, Australia, Indonesia and Brazil, the impact of a slowing China has been predictably negative.

Re-exporting countries — those most dependent on China’s electronics demand such as Taiwan, Korea, the Philippines and Vietnam — fared better.

Vietnam and the Philippines did this by increasing their market share and the value of their electronics and textiles exports to China. Taiwan and Korea, meanwhile, increased supplies destined for China’s final consumers.

The UBS economists note that the role of processing in China’s export story has shrunk since the global financial crisis.

Due to weaker developed-market demand and eroding competitiveness in lower end and labor-intensive sectors, China is moving up the value chain.

That could mean less Chinese demand for developed exporters and more competition, too.

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