Emmanuel Laborde: Last topic of this program: the Chinese slowdown.
It has varied consequences for different countries.
Overall, in developed countries, the effect should be negative even if the deflation in China might generate gains in purchasing power.
In emerging countries, we'll have to consider Foreign Direct Investments that could change the situation. We are going to review these different situations.
Emmanuel Laborde: Hello.
Christine Peltier: Hello.
Emmanuel Laborde: Let's see some transmission channels of this Chinese economic slowdown to the rest of the world. The first that comes to mind is that of foreign trade. Can you describe it?
Christine Peltier: Yes. The most obvious transmission channel the slowdown in Chinese imports, and imports of raw materials in particular.
It affects commodity producing countries by a combined effect of the decrease in export volumes and the decrease in commodity prices.
Emmanuel Laborde: Which countries will be affected?
Christine Peltier: In emerging countries, Latin American countries and South Africa are expected to suffer most from this reduced Chinese demand.
Emmanuel Laborde: Another major channel: prices. The Chinese slowdown will strengthen Chinese competition. What consequences and for which countries?
Christine Peltier: The slowdown in Chinese growth goes with a strengthening of industrial policy which strengthens Chinese competition.
A given country will face this Chinese competition both on its domestic market
and on its export markets. And the level of competition is strengthened by China’s deflationary pressure.
Emmanuel Laborde: Which countries will be affected?
Christine Peltier: With the increase in US trade tariffs and the decoupling process between China and the US, the Eurozone is probably becoming the main export market for China. If we consider the Eurozone as the third market, and if we combine the intensity of Chinese competition on the domestic market and the intensity of Chinese competition in the Eurozone, without surprise, Central European countries and Turkey will be the most affected ones.
Emmanuel Laborde: What about Asia?
Christine Peltier: Asian countries are mostly challenged on their own domestic markets.
Emmanuel Laborde: Another major channel: FDI. It's part of the Chinese strategy.
It is a major lever that China has used these last years.
Christine Peltier: FDI is a key component of the industrial strategy led by Chinese companies. For two or three years, we've seen a strong increase of Chinese FDI in certain countries to circumvent trade tariffs or to get access to free trade areas. South-East Asian countries, Mexico, and Hungary are among the main beneficiary countries of these dynamics.
Finally, for emerging countries, contrary to developed countries, the overall impact won't be necessarily negative.
Emmanuel Laborde: So, these are mixed results which needed to be discussed.
Thanks a lot.
Emmanuel Laborde: Thanks for watching. For greater insights on these topics or others, let's visit the website of Economic Research. A large resource of on-line contents.
Thanks for watching. See you soon.
