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China slowdown: How it's affecting SA

Johannesburg - After years of China’s record economic growth, its recent slowdown is taking a toll on emerging markets. 

Matthew Birtch, senior lecturer at the Gordon Institute of Business Science and a leading expert on China, believes that this was inevitable as China rebalances into a domestic consumption economy from an investment-led growth path. The downturn is felt globally because China, being the world’s second-largest economy, contributes significantly to global growth. 

In 2014 the figure was at 38%, so when its growth slows, so does the rest of the world’s. The problem has been compounded by the fall in commodity prices among other factors. 


Following a recent visit to China, Birtch says that tier-one cities are still growing at a rapid pace and it is still business as usual despite questions around government intervention. In July, Reuters reported that the Shanghai Composite Index dropped by a jaw-dropping 20%, wiping out nearly $3 trillion (about R40 trillion) in market capitalisation – more than the gross domestic product of Brazil. 

“Despite this, China is certainly not an indebted economy and has more than $2.6 trillion in reserves. This makes a huge difference in terms of how it can react,” says Birtch. 

South Africa’s markets were largely cushioned from the 2008 financial crash because of demand for commodities.

However, South Africans are likely to feel the effect of the current scenario over the next two years as China transitions its economy away from investment spending and towards consumer spending. 

Birtch says that, with continued trade, things should improve over time: “Commodities don’t bode well, certainly for countries like South Africa, where it is becoming even more challenging to extract minerals and resources.” 

African countries such as Angola have also experienced phenomenal growth predominantly because of linkages to China. However oil-based economies in Africa will continue to take huge knocks, with the oil price declining significantly from a record peak of $145 a barrel in July 2008. 

Birtch believes that it is not all doom and gloom because there is potential for growth in the long-term as trade continues with China. 

“In the short term there will be quite a negative effect on sub-Saharan African countries, but I still firmly believe that in the long term there will continue to be lots of growth out of China in the next 10 years,” he adds. 

In terms of policy directions southern African countries should continue to diversify their economies to avoid commodity shocks and fundamentally increase trade with one another, allowing for more regional integration.

They need to create beneficiation with their products instead of selling them raw and buying them back at higher rates. 

“These are the same policies we have been discussing for the past 10 years but they need to start taking effect now.” 

In the interim, China will continue its drive to internationalise the renminbi, which will allow it to do more with its economy. 

China is certainly under a spotlight as many companies have not hedged themselves outside the China story. The slowdown has a detrimental effect because of this. The events of August 24 reiterate that change is constant and not everything can be controlled. 

“Some things just have to naturally integrate into the world economy,” says Birtch. 

» City Press is the sponsor of the Gordon Institute of Business Science’s forum sessions.


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