The world gets a cold when America sneezes. The saying goes. As China begins what could be its largest economic shift in decades now, the world is anticipating a test to see if that aphorism holds true for China's second-largest economy, and biggest trader.
In August, Chinese President Xi Jinping stressed his intention to refocus China's economic priorities toward what he calls "common prosperity." This phrase has become a common slogan in statements by the Chinese Communist Party and reports published in state media. It refers to a potential transformative effort to address deep-rooted income inequality, after four decades of chasing rapid growth.
Although the exact details of the campaign are still unclear, Beijing's crackdown on China's booming fintech and edutech industries over the past year has raised alarm bells in some of the country’s fastest-growing sectors.
China stopped Ant, a financial services company, from launching what was to be the largest IPO in history. Because Evergrande, a construction giant with debts exceeding $300bn, is feared to collapse and bring down the housing sector, the government made it more difficult for property developers to obtain loans. Beijing has banned private tuition companies that are for profit, a major blow to a $120 billion industry. The combined stock value of $1.5 trillion had been erased by the policy changes in December.
According to naysayers, a variety of emerging economies, from those that feed China’s insatiable appetite for raw materials to those that rely on Beijing for investment, will feel the tremors.
Al Jazeera was told by Michael Pettis (Senior Fellow at Carnegie-Tsinghua Center, and professor of finance at Peking Univeristy). "It will impact on the external world." These might continue for many years."
Appetite decrease
China is home to the most billionaires in the world, but 600 million people live on a per capita income of just $1,600. Pettis said that a rebalance by China will almost certainly lead to slower growth rates during the transition.
This will lead to a decreased appetite for energy and minerals. Ryan Hass, Senior Fellow at Brookings Institution, stated that China's shift will most impact commodity dependent exporters. Countries with greater diversification, however, will be able weather the shift with relative less impact.
Russia exported $23.8bn worth oil to China in 2020. This is despite Western sanctions limiting Moscow's trade in defense technology and other areas. Angola, which exports 70% of its crude oil to China, and Brazil which sends nearly 64% of its oil to the East Asian nation will likely also be affected.
Contrary to this, countries such as Saudi Arabia and Iraq which export around 25% of their oil to China will not suffer as much -- they are less dependent on one buyer. However, Kazakhstan, which exports 47 percent to Beijing, and Indonesia which exports coal, gas, and palm oil to China -- the largest destination for its exports – are likely to suffer.
Iran could be a surprise beneficiary, as it sells oil at discounted rates to China. This is a great deal for Beijing, especially if it slows down its economic growth.
