China's Economic Hard Landing: Think Twice Before Gloating Over China’s Slowdown
For those who were anxious over the voraciousness of the modern Chinese economy -- the country’s breakneck development since the 1980s, its mounting influence over global trade, its expanding ownership of other nations’ debt -- China's current slowdown may seem welcome, in a perverse way. For years, the largely unstated admonition has been: Seriously, China, slow down.
Yet the reality is that a major Chinese economic slowdown could spark a crisis of monumental proportions, damaging every economy in the world, and the Chinese government has yet to show how it will prevent that from happening. After overseeing what may well have been the fastest growing economy in human history, China is trying to come to terms with how to manage its inevitable slip -- to minimize the damage while putting in place structural reforms involving improvements in tax and exchange rates and minimizing cozy government relationships with companies to enable long-term recovery and sustainability….
…Analysts forecast that a Chinese hard landing would lead to a 30 percent to 40 percent drop in base metals prices and a 30 percent fall in Brent crude oil prices. As prices fall below the cost of production, they should recover over the subsequent 6 to 12 months, but the pace of the recovery would be uncertain. Societe Generale's global head of commodities research Michael Haigh believes gold could initially bounce on a Chinese hard landing, but because Chinese savers are big buyers of gold, the impact could be short lived and the volatility of gold could increase. While lower prices could hurt commodity-producing countries, it could benefit importers -- countries such as the Philippines, the Czech Republic, India and Turkey.
“As China’s demand for commodities such as aluminum, coal and oil, come down, it starts to cause a downward pressure on commodity prices,” said Bhaskar Chakravorti, dean of international business and finance at Tufts University's Fletcher School. “It’s going to benefit countries that are importers of commodities, and to a large extent, have been paying the higher cost of commodities.”
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