Question

Why should managers of international businesses be concerned about an economic downturn in China?

Answer 1

According to the World Bank, China has the fastest-growing significant economy in the world with growth rates averaging 10% over the previous 30 years. By the end of 2017, the country's economy was the world's second biggest by nominal gross national product (GDP) and the world's biggest by buying energy parity (PPP) next to the U.S., guided mainly by its manufacturing sector that exports commonly consumed products around the world.

Depending on their exposure, China's financial slowdown would affect distinct areas of the globe in distinct ways. The slowdown could have a adverse effect on their GDP development as demand slows in nations based on commodity exports, such as Australia, Brazil, Canada, and Indonesia. However, for other nations that eat commodities, such as the United States and nations across Europe, the inevitable drop in commodity prices could be useful.

Either way, the slowdown on the part of the global economy will involve some adjustment. According to the IMF, over the previous several years, the nation has been the single biggest contributor to worldwide economic growth, contributing an average of 31 percent between 2010 and 2013. These numbers are considerably greater than their eight percent contribution in the 1980s, but some economists argue that as the global economy rebounds from the 2008 financial crisis, the US and Europe could pick up much of the slack.