China known for its exports is now exporting fear to the world economy. The global investors are trembling over the devastating fall in the Chinese economy. They have started losing confidence that the policymakers in China who were sure-footed in the past know the solution to the problem.
The worst issue is that the collapsing Chinese economy might derail the economy of the emerging markets such as Chile and Indonesia. Also, there will be an impact in the powerful economies such as European Union, Japan and the United States.
The International Monetary Fund is bullish that the Chinese economy will grow by 6.8 percent. This growth will be its weakest pace since the year 1990. In the mid 2000s, China started posting double digit growth and now, it is facing a daunting transition.
In the first quarter of this year, the Chinese economy grew by 7 percent, reveal the official numbers. Still, there is a suspicion that the Beijing statistics are not able to capture the degree of the slowdown.
Beijing cushioned the Chinese economy during the 2008-09 fiscal year while there was a financial crisis. It was handled by commanding the state owned banks by providing loans to houses, factories and to build roads. As a result, there was an escalation of the corporate debt that is feeding the problems in the country.
The major American companies including Chevron and Caterpillar have acknowledged that the damage they are facing due to China’s troubles. For instance, a one percent drop in the Chinese economy translates to 0.2 percent drop in the American economy, stated Mark Zandi, the Chief Economist of Moody’s Analytics. As per UniCredit Research, a one percent slowdown in the Chinese economy will result in 0.1 or 0.15 percent of slowdown in the 19 country European Union.
As per the Chief Global Strategist, David Kelly of JP Morgan Funds, the free-fall in the Chinese stock markets is referred to as “Made in China”. Kelly stated that the automobile sales, construction activity and electricity consumption are looking too weak.