China Impact on Uk
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China has lowered its growth target from 8% to 7% for the next five years. Discuss the possible consequences of slower growth in China to the UK economy.
On one hand, slower Chinese growth may reduce Chinese domestic consumption. This will have two possible consequences. Firstly, it may reduce Chinese imports and the Chinese are not able to afford as much luxuries from abroad and therefore reduce British exports, thus increasing costs to British exporters and causing unemployment in the UK and lower income. Secondly, as Chinese domestic demand is reduced, Chinese export capacity increase. This will free up Chinese capacity for exports putting more pressure on other exporters such as the British exporters market. This will make Chinese exporting firms more competitive abroad but also foreign firms more competitive as their exports will fall too.
However, if economic growth in China is slowing down because it is becoming more developed and moving away from cheap manufacturing goods, it will mean that they will start to demand more financial services so British exports may actually increase. Yet, only a small component of our exports goes to China so a slowdown in their growth may actually have small effect on the UK economy. Furthermore, the growth target has only faller from by 1% so nothing much has changed.
On the other hand, slowing growth in China and in the UK could lead to slowing price rises for a wide range of commodity goods as well as consumer goods which will reduce inflationary pressure. This is because as Chinese growth falls, so will demand for raw materials which will lower global commodity price and therefore inflation.(Diagram) Equally Inflation can be reduced further by the fact that supply rises due to increased availability of goods. This reduces price and therefore, inflation.
Moreover, the consequences of slower growth depend on how the Chinese government responds to it. If they respond by boosting consumer demand, British exports will rise. Furthermore, if is they respond by bringing forward infrastructure projects forward, steel, mining and coal companies will do a lot better.
In conclusion, the consequences of slower growth are likely to be positive in the long term to the UK but only to small extent as only a small portion of UK exports go to China.