Current issues related to the economy, (responsible) investment, pensions and income: every week an APG expert gives a clear answer to the question of the week. This time: Chief Economist Thijs Knaap on the faltering Chinese economy. “The decline in growth had to happen sometime.”
Economic growth of 4 percent in the fourth quarter of 2021. Many a country would sign up for it. For China, which announced the figure on Monday, it is nothing short of a setback. In fact, it is one of the lowest growth rates since 1990. Now that China’s impressive economic growth seems to have come to a temporary halt, the question looms: how will we be affected?
An event in the Chinese economy can affect other countries in three ways, Knaap says. Through the trade in goods and services, through financial channels and through the price of raw materials. Trade in goods and services, the trade channel, revolves mainly around Chinese exports, and to a (much) lesser extent imports. From the pen you write with to the phone you make calls with: chances are it comes from China. “It’s a bit of a Dutch instinct to immediately think of trade. But the interesting thing is that in the case of China this instinct is correct,” Knaap says. “Because of these three ways, the trade channel with China does have the greatest impact on the Netherlands.” This was noticeable when the Netherlands needed masks at the beginning of the Covid pandemic and China could not immediately supply them. Knaap does not expect the reduced Chinese growth rate to have an immediate major impact on trade with the Netherlands. At most, the delivery time of, for example, phones will be a bit longer.
It might be thought that the trade channel is also the most important in the Netherlands’ economic relations with many other countries, but Knaap says that is not the case. “The best example of this is the United States, with which the Netherlands also does a lot of trade. When the financial markets collapsed there in 2008, things went seriously wrong here too, and banks like Fortis and ABN AMRO ran into major problems. Suddenly the financial channel appeared to have the greatest influence. The recession in the Netherlands was not caused by a drop in demand for Dutch products from the United States, but by exposure to the American financial system. This applies to virtually every major economy with which the Netherlands trades, but not to China. This is because for a long time Beijing wanted as few financial ties with foreign countries as possible. As a result, foreign influence is limited and China has little exposure to the international financial system. As a result, a slowdown in Chinese growth is much less serious for an open economy like the Netherlands than if things go wrong on Wall Street.”