TAIPEI, Taiwan—The sharp dive in Chinese stocks this week sent a sudden chill through markets around the world, from New York to Mumbai, India. But for months, some of China’s nearest neighbors and top trading partners have felt cool breezes blowing through the world’s second-biggest economy.
Take Taiwan, an export-reliant island of 23 million people about 100 miles off China’s southeastern coast. Nearly 40 percent of its exports, and 57 percent of its outbound foreign investment, go to China. Taiwan’s government had forecast its economy would expand at least 3 percent this year.
But with demand slackening on the mainland for high-tech goods and other items, Taiwanese officials this summer slashed their growth target nearly in half, to 1.65 percent, and some analysts say even that may be a reach.
A survey by the Taiwan Institute of Economic Research released this week found 18.8 percent of Taiwanese manufacturers were optimistic about the next six months, down from 25.2 percent in June.
Confidence has been shaken further as Taiwan’s stock market slumped along with Shanghai’s, and China devalued its currency, making Taiwanese exports relatively more expensive.
That has sent authorities in Taiwan scrambling to prop up share prices through government purchases—and consider a devaluation of Taiwan’s currency to prevent further economic damage.
“Honestly speaking, we are now at a very difficult time,” said Connie Hui-chuan Chang, director general of Taiwan’s National Development Council, a key economic planning body. “Because of the influence upon us of what happened in China… the Cabinet has been working out how we can boost up our economic growth again.”
Taiwan isn’t alone. Investors, small-business owners, chief executives and government officials from Japan to Vietnam to Australia are rethinking and readjusting as China’s slowdown ripples across Asia and other parts of the globe.
In the US, the stock market surged on Wednesday, with the Dow Jones industrial average soaring about 619 points and finishing with a gain of nearly 4 percent after severe declines in five consecutive sessions, mainly in response to China’s economic woes. The broader Standard and Poor’s 500 index gained 3.9 percent, and the Nasdaq composite index also shot up about 4.2 percent.
But the same could not be said for China, where the Shanghai Composite dropped 1.3 percent on Wednesday after a volatile day of trading. The Shenzhen Composite also fell 3.1 percent, while ChiNext, a Shenzhen-based exchange that hosts fast-growing enterprises, ended down 5.1 percent.
Chinese stocks have fallen about 16 percent over the last week, rattling markets worldwide as investors raise concerns about the Chinese leadership’s management of the country’s slowing economy, even though Chinese markets are not highly integrated with the global financial system and many analysts and investors treat them as an entity almost separate from other economic indicators.
China plays an increasingly central role in global trade—the country accounts for at least 15 percent of global output—and panic about the volatility of its markets has cut trillions of dollars from exchanges around the world, in both developed and emerging economies.
“Australia and Indonesia, the big exporters that are depending on Chinese demand for everything from copper to iron ore, will be affected [by China’s slowdown]; Brazil is another one,” said Damien Ma, a fellow at the Chicago-based Paulson Institute, which focuses on sustainable growth in the US and China.
“People are not sure if Chinese demand is going to be there. The other area is Middle East countries, with oil down to $40 a barrel. Car sales in China are still growing but slowing, that adds to uncertainty about where demand is coming from.
Outside of cars, you have industry, but that’s slowing in China, too. So that’s put downward pressure on oil markets.”
China’s economy grew at 10 percent or more a year for much of the last quarter of a century, but since the 2008 global financial crisis, it has relied on what the International Monetary Fund (IMF) calls an unsustainable growth model, based on excessive loans and investments, that has created big risks in the banking, real estate and corporate sectors.
Chinese leaders say they are intentionally moving toward a model of slower, more sustainable growth, aiming for better-paying jobs in the service sector rather than low-wage factory jobs, more innovation and a more robust consumer sector. Growth, which slowed to 7.4 percent last year, is expected to ease further to 6.8 percent this year, the IMF said in July.
The World Bank has estimated that a 1-percentage-point decrease in China’s growth rate could slow growth in the wider Asian region by about 0.2 percentage points.
China’s strong economic expansion has given a lift to many countries in recent years, albeit for different reasons. Australia, for example, benefited handsomely as miners exported raw materials to China to help fuel its infrastructure boom; between 2009 and 2014, Australia’s trade with China grew by almost fivefold.
Los Angeles Times/TNS
Image credits: AP/Mark Schiefelbein