The economic uncertainty in the markets has been squarely focused on Greece and the potential fallout for the rest of Europe. The potential financial collapse of Europe has diminished, but they still face several problems without any near term solutions. It seems like the markets have already priced in concerns for the problems facing Europe, but may not fully reflect the more significant impact of a slow-down in Chinese growth.
The Chinese government said it will target economic growth of 7.5% this year the lowest level since 2004. China had its largest trade deficit since 1989 last month as Europe’s sovereign-debt turmoil hampered exports and imports. Furthermore, as the Chinese economy grows their advantage as a low cost producer is slowly eroding and their citizens will start to demand more benefits and become more environmentally conscious. This drives up costs and makes China less competitive in world markets. This coupled with their biggest trading partner, Europe, in a recession leads to slower growth in China and thus slower world growth. An Increasingly important trading partner of developed and emerging markets China’s export and consumption trends could have serious ramifications on the rest of the world