October 10th, 2012
10:44 AM ET

What China’s slowdown means

By CNN Global Public Square

For more “What in the World,” watch "Fareed Zakaria GPS" on Sunday at 10 a.m. and 1 p.m. ET

For the last few weeks we’ve been getting bits of news that add up to something big.

China is slowing down, dramatically. If it continues, it will have a profound impact on the rest of the world. GDP growth has dropped from about 10 percent last year to 7.6 percent in the latest quarter. Now that might not sound like much, but it might just be the beginning: like a dropping ball, we don't know if it has hit bottom yet. What we do know is that it will have widespread effects.

Take the example from Brazil since the 1990s. Brazil’s GDP has fluctuated around an average of 2.5 percent. But there’s a pretty stark correlation between GDP – as commodity prices rise or fall, Brazil's growth rate moves accordingly. The same is true for sub-Saharan Africa. Rates of growth closely track commodity prices. Those prices in turn, will increasingly track with China’s growth.

Australia is another example. It used to be called the “lucky country,” but this past week it recorded its biggest trade deficit in four years. Why? Prices of iron ore and coal are sharply down because of slowing Chinese demand.

From Australia, to South America, Africa, and beyond, China’s unprecedented rise has brought with it a boom for resource-rich countries. As China’s growth slows, the party is going to wind down.

Even the United States is not immune. I was struck by a report in the Wall Street Journal. “In 2009, U.S. met coal exports to China grew nearly six-fold, and grew by the same rate in 2010” Six hundred percent rises! But as China’s steel industry faces a loss this year, demand for U.S. coal has slowed. That’s contributed to layoffs for hundreds of coalminers in the state of West Virginia. Thousands of miners will have their pensions and health benefits reduced.

All these ripple effects lead back to China. To give you a sense of its importance, look at the market for metals. According to the World Bank, China’s consumption of refined metals has jumped 17 times since 1990. Its share of global consumption of these metals has jumped from 5 percent to 41 percent. Over the last decade, while China’s demand has been growing by 15 percent a year, the rest of the world’s has remained constant. China has essentially fuelled global growth in these markets. But now that China’s appetite is waning, commodity prices will fall – indeed are falling.

Oil prices are dropping as well. China consumes only about 10 percent of the world’s crude oil. But over the last decade it has contributed to nearly half of the global rise in demand. According to Morgan Stanley’s Ruchir Sharma, on average, China's appetite for oil has been increasing by 8 percent a year. This year, it’s growing at just a third of that amount – 2.5 percent. Now, if this slowdown is indeed the new normal for China, as many economists suggest, it has immense ramifications. All these countries which count on rising crude prices to balance their budgets – Russia, Venezuela, and many of the Arab states – are all going to struggle.

I don’t mean to paint a picture of doomsday. Despite China’s slowdown, it will continue to grow at more moderate 6 percent to 7 percent in the coming years. It’s a rapid rate for what is now a very large economy. But it will mean that the party is over for many countries and companies around the world. And they need to get used to the new normal.

soundoff (149 Responses)
  1. Cheese Wonton

    Trade with China is a whopping 2% of US GDP. Trade of all forms is less than 20% of the US GDP. The US still has a remarkably insular economy. More than 80% of what we buy is made here, food, refined fuels, chemicals, housing, a large proportion of our cars, medical equipment, furniture and the list goes on. Imports are only important among consumer goods, but there are is no shortage of countries itching to take Chinas place in the US market if China fails. But Chinas failure will have little impact on the US economy. The press is over wrought with the impending collapse of the Chinese economy. Yes, it is likely coming, but it won't be noticed much here.

    October 11, 2012 at 12:18 am | Reply
    • UHHH

      With 14 trillion debt and growing. The only one crashing is the US.... You need to take some real math courses! didn't know the education system was this bad in the US.

      October 11, 2012 at 10:56 am | Reply
  2. Maria

    Our 200 hundred year long glorious history proved we Americans are still successful and thrive without China. In fact, we Americans do everything better without China because all China does is to steal everything from us. China is the biggest thief in the world.

    October 11, 2012 at 12:33 am | Reply
    • UHHH

      & in those 200 hundred years, American caused more suffering than any other, with slavery, prejudice wars, discrimination, etc...! A 200 year old brat should learn to respect the REST of the WORLD which is much older than it. Blah, blah,blah, you're a mindless drone, China have the second biggest amount of patents approved each year. The ignorant American way, call others a cheater/thief/ degrading slur when you can't win at the game, loser.

      October 11, 2012 at 10:54 am | Reply
      • alan

        guess you would have been happier under hitler or stalin or any one of the many would- be world rulers,who exactly is the mindless drone? you have no understanding of world history and if by chance you do,you are a deliberate fool.

        October 11, 2012 at 11:58 am |
  3. Maria

    This article is rubbish.
    We Americans can survive and thrive without China.
    In fact, China manipulates their currency to delay and destroy our economy. China is the biggest thief in the world.
    We Americans don't need China to improve our economy. China steals our jobs, steals our intellectual property and wants to replace the US dollar by China Yuan as the world's main reseve currency. China is not our friend, China is our enemy.

    October 11, 2012 at 12:45 am | Reply
    • UHHH

      & you're a caveman. Stay in your isolated kingdom of arrogance and ignorance. No one wants you, especially China anyways!

      October 11, 2012 at 10:50 am | Reply
    • Maersk

      You shouldn't call yourself American when in fact you are just "Trash". Please crawl back to your mother's smelly kunt and stay there.

      October 12, 2012 at 6:39 pm | Reply
  4. johnny

    How can a country of over US$3 trillion in solid foreign currency collapse? I think Americans at large need to be realistic with the real problem – which is America!

    I cant believe that American netizens are still talking like US doesnt have any economic or financial problem – and distracting their own financial fiscal cliff by pointing their fingers at China that the Chinese economy is going to collapse. Where are the statistics to support this American myth about China's economy? Many American so called investments analysts have been predicting China's economy hard landing – since 2000! It never happened and there is no hard landing like CNBC an other US mad medias have been telling Americans audiences – and the more often they repeat this myth, it sinks into the empty heads who now believe its real !

    Get real man, dont be so myopic about your own precarious situation. In fact I believe USA is at the verge of going into a recession, and followed by at least 10 years of deep recession – if nothing is done to settle the US national debts which will surely climb to US$25 trillion by 2020. When that happens its game over for America. Depression will follow because by then the world will abandon the US$ resulting in it's value crashing to the bottom of the cliff.

    America cannot afford to continue supporting its "greatest powerful country" ego, because American is BROKE! The onlty way US survives is by printing more money to sell to the rest of the world who still trust in the US$. That trust will disappear at the first sign of a US deep recession.

    October 11, 2012 at 1:17 am | Reply
  5. johnny

    Never read China naively and wrongly, without confirming the facts, like what many US medias are doing. China's slowdown is deliberate, and economically tactical.

    To me, it's like China wants to sneeze so that the rest of the world will be in bed with a fever :)

    October 11, 2012 at 1:28 am | Reply
  6. No Muslims & Chinese in My Backyard Please

    India has the largest middle-class population. It has production units supporting mainly internal consumption. It exports knowledge based services which Chinese could not copy for last 2 decades. So, Indian economy is safe.

    In the changing world, India and US economy are to collaborate and seek markets within – expelling China.
    On the other hand Indians should elect Narendra Modi as PM.
    This is the remedy.

    October 11, 2012 at 3:18 am | Reply
    • Cow Deng Ping

      Seems like India is falling apart at the seams. First, hundreds of sick left burning in a hospital fire, then hundreds dead drinking some hindu moonshine concoction, followed by massive power blackouts, nuclear accident and now this. Poverty is rampant, societal values have collapsed; inflation is in the clouds while the rupee is in the toilet. This economic and political model has failed. The moment US pulls out of Afghanistan, it iwll be all over for India. No more handouts by American taxpayers.

      October 11, 2012 at 2:55 pm | Reply
  7. 100 % ETHIO

    Chinese Government passes a new Law, to audit China's own State business around the World and protecting Chinese around the Globe.
    China already experienced and entered into the Worldwide market. The only thing China will loose is, its fast growth and some inflation.
    More or less, China can not afford to go back, what it was 50 years ago.

    Recently, Chinese Government visited Afghanistan and discussed investments and economic developments. What was the West reaction....??

    On the expenses of the West's,
    Chinese looks good and invests?

    October 11, 2012 at 5:06 am | Reply
  8. Marco Hsiao

    China's GDP is slowing dramatically, and that will have effects on other countries

    This is an immoral big mistake. Who did it? It is cheating the US citizens, and is misleading the US strategy.

    Correction: China's GDP growth is far higher than the US; the terrible big US Federal debt is threatening the world recovery.

    October 11, 2012 at 5:49 am | Reply
  9. Marco Hsiao

    BRICS countries are growing and progressing. Unity is the best policy for BRICS.

    India had been invaded by immoral Britain brutally. (Britain also made about 10 million African black slaves, and tortured 3 million to die in British ships.) Lots of Indian cultural sites were destroyed intentionally by Britain for ruining nationalism of India.

    Rifts were also made by Britain intentionally between various ethnic groups of India (especially Hindus and Muslims), and between India and her neighboring countries.

    Now Asia is more and more important. India and other Asian countries should unite together for peace and prosperity.

    October 11, 2012 at 6:19 am | Reply
    • Hihi

      Big parts of Human dignity and Self respect are missing in this society.

      October 11, 2012 at 8:15 am | Reply
      • Hihi


        October 11, 2012 at 8:16 am |
    • centipede

      never trust an indian

      October 12, 2012 at 8:35 am | Reply
  10. Reprinted With Permission ©

    INDIA:::: Some Alarming Statistics: (Source: UNDP)

    • 1/3rd world’s poor is in India. It also has a higher proportion of its population living on less than $ 2 per day than even sub-Saharan Africa.

    • 828 million people or 75.6% of the Indian population is living below $2 a day. 42% of the population is living below the new international poverty line.

    • 33% of the global poor are Indians. Sub-Saharan Africa considered the world’s poorest region is better than India.

    • 41.8% of the rural population survive with monthly per capita consumption expenditure of Rs447 ($7)on essential necessities like food, fuel, light and clothing.

    October 11, 2012 at 8:07 am | Reply
  11. In The Shadow of Taj Mahal

    The one most successful aspect of recent American foreign policy has been the conquest of India without firing a bullet. That is the beauty of capitalism used as a Trojan Horse! Economic victory! Give them a taste of steak and they will never settle for hamburgers again. USA now owns India Inc. not only economically but also militarily as economic subjugation ultimately leads to military domination.

    October 11, 2012 at 8:08 am | Reply
    • alan

      steak and hamburger analogy while talking about india,i hope you did that on purpose,lol

      October 11, 2012 at 11:52 am | Reply

    May be they dont like to buy fake product produced by neo-nazi.boycott made in China.

    October 11, 2012 at 10:49 am | Reply
  13. alan

    china slowdown translates to lower oil prices and fareed cries for venezuela and the arab countries,please. the biggest effect will be china starting a regional conflict to divert the populations attention from the economic downturn. i believe GM is still moving some production that way though,stimulus dollars at work..........

    October 11, 2012 at 11:50 am | Reply
  14. alan

    india has a caste system and a billion people. the vast majority will be poor until the country moves into the 21st century

    October 11, 2012 at 11:54 am | Reply
  15. iceload9

    Wonder if China will look for a country with loads of available labor at cheap rates and low benefits where the govt doesn't do anything, like the US?

    October 11, 2012 at 1:00 pm | Reply
  16. Mona

    Didn't Zakaria write an article not that long ago that everyone should acknowledge China's dominance as a superpower based on the numbers when they were growing? Most people said they couldn't sustain that growth. I for one will not be sad to see it slow up, China's rise is a nightmare for the environment and the countries they were "helping". They are bribing and looting countries of their resources.

    October 11, 2012 at 2:54 pm | Reply
    • Maersk

      Mona, what you really should do is stuff your smelly kunt with a big black dudo and moan.

      October 12, 2012 at 6:16 pm | Reply
  17. grantcv1

    Money is created artificially when someone borrows money. That borrowing might be when you buy a house or when the government spends more than it taxes. That is how the world's money supply is expanded – someone takes on debt. Money is created to satisfy that debt and the world's economy grows as long as that debt is not paid back.

    In the US, we take on a lot of debt – $16 trillion is federal debt, $14 trillion is mortgage debt, etc. That debt created a lot of money. So why don't we have $30 trillion? (We have $10 trillion) Well, part of the reason is that $1 of debt doesn't create $1 of new money – the system isn't that efficient. But the other reason is that we leak money – sending money to China (and elswehwere) to pay for all the cheap stuff we buy. The trade deficit since 1980 amounts to $10 trillion.

    So lets think of it this way. In the past 32 years, we in the US have taken on about $27 trillion (there was already about $3 trillion in the system back in 1980) in debt to fund the world's economic expansion. That debt created about $18.5 trillion (taking out money that already existed) and of that money, we sent $10 trillion overseas. That $10 trillion has done wonders for those receiving countries, fuelding their spectacular growth. Meanwhile, we're still holding all the debt that created that money. If we pay the debt down, we get into trouble. We don't have enough money in our country to pay off the debt. Duh! We're a country of greedy fools.

    October 11, 2012 at 3:16 pm | Reply
  18. ahaa

    It doesn't matter if China is "slowing" down from 10 to 7 percent. Fact is that China is still on its best way to become the dominant country this century. It's just a matter of time. I guess another 10-20 years.

    October 11, 2012 at 3:44 pm | Reply
  19. Heng S.Ling Hsoa

    The most shocking aspect of the Hindu Cult "Aghori" life in India is their cannibalism. Dead bodies that are found floating in the river are gathered up and meditated on. The limbs are then removed by the Aghori and eaten raw.

    October 11, 2012 at 3:57 pm | Reply
  20. cpc65

    Not to state the obvious here, but as many former US jobs are now in China more of us in the US can't afford to buy as many of the things they're now making over there in China. ~ Confucius says, "Shrinking middle class consumer base equals shrinking demand for middle class type goods."

    October 11, 2012 at 5:52 pm | Reply
  21. maddog49

    China is not out of money until it has spent its last DOLLAR! Not yuan, but DOLLAR! This means that we Americans shall share their economic pain. As the Chinese spend their dollar reserves, the supply of dollars will drive down the dollar in the world market.

    For the good of their own people, the Chinese government needs to let the yuan rise in value so that their prices will fall and their people will be able to afford to buy the goods that they already sweat to make. This is NOT good for Americans, of course, because over here, prices of consumer goods shall rise and supply of them shall decline.

    Real wealth is not paper money. Real wealth consists of the goods and services that we produce that is available to be bought with the money we have. Thus, the Chinese workers produce real wealth. If you think that it is darn near impossible for the United States to go back to making most of its own consumer goods, you are just conceding we don't have the means to be truly productive. Hardly anybody would voluntarily pay a bureaucrat out of his/her own pocket. Why have so many Americans chosen careers in bureaucracy? We are copying the losing strategy of the old Soviet Union.

    You make want to get tough with China. You may like to sneer at China. However, we Americans are in no position to get tough or sneer, not as long as we owe $1.5T to them. As you get ready to watch the VP debate, remember that neither Obama/Biden nor Romney/Ryan is going to lessen the debt owed to China.

    October 11, 2012 at 7:00 pm | Reply
  22. outawork

    Hopefully China's economy will tank, there will be a people's revolution, the communists will be stood against the wall and shot.

    October 11, 2012 at 9:52 pm | Reply
    • Maersk

      You should worry about the fact that you may have to zuck Chinese kwoks for a living instead.

      October 12, 2012 at 6:19 pm | Reply
  23. Indian Girl

    China is shining even more. USA has dim light for a few years. The writer lives on Mars. It just seems his/her wish list.

    October 12, 2012 at 12:33 am | Reply
  24. Indian Girl

    I wonder why are Americans so antagonistic to China.

    October 12, 2012 at 12:35 am | Reply
    • Hadenuffyet

      Because of the mass exodus of decent paying jobs to slave labor markets. Pretty simple actually.

      October 12, 2012 at 9:45 am | Reply
      • Maersk

        I don't think it is that simple. I think it may be because the factory owners don't want to keep making American kwok zucking kwok zuckers such as you here in the U.S., especially when your kwok zucking skill is not that great.

        October 12, 2012 at 6:24 pm |
    • cedric

      Like little children in pre-school, we antagonize our way into being the "cool kids."

      October 15, 2012 at 10:55 am | Reply
  25. Robert Leopold

    China's economic growth has structurally been bloated by exports and massive infrastructure building and construction. Without a recovery in exports short term and with large oversupplies in residential and commercial real estate, the transition to a consumer led recovery is a more daunting task than one might presume in a communist capitalist economy with a large people resource. A fragile consumer confidence in a society that is now social network savvy and in sharp contrast to conditions just a decade ago combined with a forthcoming new political leadership directing a government whose credibility is increasingly tarnished is reason for more caution either about the duration of the current slowdown or the amplitude of the next recovery.

    October 12, 2012 at 2:13 am | Reply
  26. fiftyfive55

    It's not the Chinese people that Americans don't like,it's our businessme who sold us out for slave labor and no environmental protection agencies that we abhor and look at as national traitors to the American citizens who they abandoned.

    October 12, 2012 at 6:56 am | Reply
  27. Hadenuffyet

    I've gardened, canned , raise livestock , and burn wood. Not much I need from globalization.

    October 12, 2012 at 9:43 am | Reply
    • Maersk

      What about that Chinese made dudo you are zucking at this moment?

      October 12, 2012 at 6:30 pm | Reply
  28. truthordare7

    What does it mean? Hopefully, a time for revolution, when the candies run out and the people's frustration spills over to the street and the communist regime is toppled. The time has come for the last bastion of communism to fall and a billion people to be free from the yokes of tyranny and oppression. A time for upheaval, pain, uncertainty, but also a time for freedom, hope, and a new destiny. Hopefully, a world where human ideals are not sacrifced by the west for profit and easy money drawn out of the emaciated hands of oppressed people. Hopefully.

    October 12, 2012 at 12:47 pm | Reply
    • johnny

      A revolution can conveniently and instantly erupt in the States. The stage is like set because everyone has guns and plenty of bullets in the house.

      It will make my fear come true too, I have often wondered how close America have been to a civil or racial disturbances that may result in a revolution by certain section of American society. I suppose it will all depend on the state of the Americn economy, if it collapses and the poor everywhere become desperate, and hungry – we can expect there will be shooting and robbery everywhere.

      October 15, 2012 at 10:55 pm | Reply
      • Bill

        The U.S. has a far more stable political system that China. The average GDP in China is till only around 6K, so you can see the majority of the population are still not getting a slice of the pie. While we have seen the middle class lose some ground over the last five years in the U.S., it has been a steady growth for decades. This is a diffrent world then the repressive Chinese government. Why compare the two?

        October 16, 2012 at 10:01 am |
  29. cedric

    China's never slowing down, just on a nice vacation.

    October 15, 2012 at 10:49 am | Reply
  30. Bill

    China still relies tremendously on exports, but the information shows its vulnerabilities. China's GDP is dropping simply because Europe and the U.S. can no longer afford to keep buying its junk. In the end, its these economies that have been propping up China's. I also feel that China could one day implode, considering that it does not have the most stable political system compared to other nations. China has a tremendous amount of internal conflict, between minorities and government, as well as a growing rift between the new wealthy and poor. A slowdown could amplify these diffences, and riots could result. Every Asian tiger has cooled off, but I am not sure China has the political system in place to control the aftermath.

    October 16, 2012 at 9:58 am | Reply
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