The Chinese Economy and impact on Global Economy

When the Shanghai stock index plunged 8.8% on 27 February 2007 (Tuesday), investors in New York’s equity markets sent Dow Jones Industrial Average (DJIA) down more than 400 points, its biggest single-day drop since the first trading session after the terrorist attacks of 9/11 in 2001. Next day 28 February 2007, India’s main stock index tumbled 4%, Singapore’s dropped 3.7%, Japan’s fell 2.9%, South Korea’s lost 2.6%, and Hong Kong’s slipped 2.5%. (Source: TIME Magazine March 12, 2007 issue) The chain reaction starting with China demonstrated the importance of China’s economy on the world stage.

China is the 4th largest economy in the world measured by GDP of US$2.68 trillion in 2006. China‘s exports grew 27.2 per cent while imports expanded by 20 per cent, resulting in a surplus of US$177.5 billion, compared to $100 billion in 2005. (Source: chinadaily.com.cn) Its forex reserves hit US$1.07 trillion at end of 2006 surpassing Japan for the first time. (Source: The Straits Times 19 March 2007)

GDP growth for China was 10.7 per cent in 2006. The targeted slowdown of GDP growth to 8 per cent in 2007 was signaled by the Chinese leadership to slow down the white-hot economy for a soft landing. The 25 per cent deceleration will impact the cross-border trade linkages to the neighbouring Asian economies along with impacts on resource supply chain that stretches from Australia and Canada to Brazil and Africa. This slowdown could easily knock more than 0.5 percentage points off global economic growth in 2007 (according to Stephen Roach writing for Newsweek magazine 19 March 2007 issue)

The US economy is important for investors to take heed. China’s economy too cannot be ignored.

Written on 3/20/2007 12:06 PM

Copyright © 2007, the author known as LKT in Singapore.

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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