China’s weak economic recovery from three years of Covid restrictions, a crackdown on the private sector and an ailing property market underscores that the world’s second largest economy is entering a period of slower growth. That will create ripples around the world, especially for the multinational companies that rely on China as a major source of growth.
More stimulus is likely to try to abate flagging confidence among companies, investors, and consumers, analysts say. Still, economists see slower growth. JPMorgan’s economists lowered their outlook for 2023 growth to 4.8%, down from 5%, and just 4.2% next year, down from its earlier projection of 4.7%. That slower growth will most directly impact neighboring emerging markets in Asia, with a one-percentage point Chinese GDP shock contributing to a 0.
Orders for heavy machinery are slowing. Caterpillar noted that Chinese demand was worse last quarter than its already lowered projections. Geopolitical tensions with the U.S. are also pushing Chinese companies to reduce their reliance on foreign suppliers, a potential challenge for global industrial companies.
“This is the first time ever that a low-income country can produce tech at such a high level,” says Rory Green, head of China and Asia research for TS Lombard, noting China’s ability to produce seven nanometer chips and airplanes. Commodity producers, especially those making materials for property construction, could see slower demand. Rio Tinto topped the list, with roughly half its revenue coming from China. Anglo American and Chilean copper producer Antofagasta are getting a quarter and a fifth of sales from the country, respectively.
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