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Saturday, December 3, 2016

The slowdown in China brings not only risks but also opportunities


The latest economic statistics of China disappointed specialists. This, in turn, spawned new conversations about the threat posed by the slowdown of the Chinese economy to the world market as a whole. If China will continue to slow down, Russia will be among the victims. The question is to what extent.

Deputy Minister of Finance Maxim Oreshkin believes that Russia will suffer less than others in case of problems with the Chinese economy. “In fact, Russia is the country that will suffer the least from Chinese challenges. The last couple of years we went through serious adjustments, that we, I think, will help in the event of a new wave of global problems”, – he said.

“In fact, Russia is the country that will suffer the least from Chinese calls”

However, the first Deputy Chairman of the Bank of Russia Ksenia Yudaeva considered that the slowdown of the Chinese economy by 1 percentage point translates to a 0.5 PPT slowdown of the Russian economy under the condition that Russia does not change economic course. According to her, in the short term, any volatility associated with the economy of China, will have consequences for the whole world, including Russia. “We in Central Bank needs to constantly monitor the situation and take measures to preserve financial stability,” added Yudaeva, reports “Finmarket”.

After the publication of the China macroeconomic reports over the weekend investors with new force have started talking about the risk of slowdown in the Chinese economy. The data did not justify expectations of experts. In April, industrial production output increased by 6% compared to 6.8% in March. Retail sales showed an increase of 10.1%, lower than in March to 10.5% in the previous year – 11%. The most serious deterioration occurs with car sales. In April it was sold only 5.1% more, while in March the growth was 12.2 percent.

Of course, about the slowdown of the Chinese economy and say it is not the first year. Now investors in the region are trying to understand as a result of the weak statistical data from China to the introduction of new economic stimulus from the Chinese authorities, in particular, whether to wait for new stage of the devaluation to stimulate exports.

The Chinese economy is the second after the us, so its slowdown is threatening the entire global market, including to Russia. In the first place it will hurt the USA because of the integration with the Chinese economy. On the one hand, Americans have long bought all the Chinese with other Chinese companies and the state needs money, the inflow of which is provided by US.

The export of Chinese products is slowing as the background of problems in the economy and against the background of the fed raising interest rates, which reduces consumption in the United States and increases the cost of loans. In March the index of business activity in industrial sector of China fell to 49 points, which corresponds to at least 2011, and the growth of China’s GDP in the first quarter amounted to just 6.7%, which is the worst figure for the last seven years.

“The weakening of the Chinese economy will inevitably lead to the fall of the US real estate market, as its third belongs to the citizens of China. In addition, the PRC with a shortage of funds can begin to sell the American husbandy, which inevitably will bring down the market,” says Daniil Kirikov, managing partner Kirikov Group.

Export brings China up to 80% of foreign exchange earnings. And the main trade partners of China are the U.S., Japan and Western Europe, which account for more than half of foreign trade turnover. Therefore, the decline in demand in these countries has on the Chinese economy, and the slowdown in China boomerang and hurt them.

In terms of trade and economic integration Russia does not depend much on China, as the USA and the countries of South-East Asia. However, a recession in China, still touches Russia. Just the impact of the problems of China in Russia will be mediated through a stress scenario in the oil market. “A recession in China could lead to the fact that oil prices will come to the levels of the early years”, – said Deputy Minister of Finance of the Russian Federation. That is up to 30 dollars per barrel.

The weakening of China, of course, will hit the Russian economy through even greater reductions in turnover. However, Russia ranks only 16 th place in the trade with China. In addition, it now shows the fall. So, in 2015 the trade turnover between Russia and China fell by almost a third and amounted to 68 billion dollars compared to hundreds of billions of dollars with major trading partners.

For Russia, ominously, the slowdown in the Chinese economy will inevitably create excess supply of oil and could derail oil prices. “If the development indicators of China will continue to fall, this has a negative impact on all resource-extracting countries, because China has been and remains a major consumer of minerals,” says Chirico.

“We should not exaggerate China’s influence on us. The structure of the economy and content of the interaction is such that in no way are an extremely important in order to because of the decline in China began in Russia would be any shocks or major shifts. You can only talk about the indirect effect through world markets, the price of oil”, – said the Director of expert-analytical center of the Russian Academy of national economy Nikolai Kalmykov.

“Many people like to find the tragedy in certain events, but now I would put the question differently. Namely, how it may be an opportunity for our entrepreneurs operating at the global level. China, on the one hand, slows down the growth rate, on the other – starts changes in the economy. And our business representatives can find new points of interaction, beneficial for yourself, in this important moment of China”, – concludes the expert from the Russian Academy of national economy.

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