The Chinese economy is certainly one of the world's most important economies, even if the yuan isn't considered one of the most popular Forex trading currencies. And with the country's recently choppy economic run, there's never been a better time to take a closer look at how China's economy truly impacts other countries and what this might mean for the global currency market, no matter what pairs or crosses you're trading.
Reduced Demand Within, Panic Without
Perhaps the most obvious challenge caused by China's floundering economy is a decreased demand from the world's most populous country. Reduced demands impact industries worldwide, from smartphone makers to automobile companies. But less spending from China isn't just hurting production and retail sales, it's also harming the commodities markets – Russia's economy has been hurt by a reduced spend on oil, and a critical $400 billion deal that would require Russia to build a new natural gas pipeline to send fuel from Siberia is being threatened by China's unwillingness to pay what Russia had considered a valid price for the fuel.
Emerging markets have been especially hard-hit by China's reduced demand. Brazil and other South American economies have been devastated by lower purchasing of soybeans and minerals from China. Brazil has been especially hard-hit, with exports to China falling 23.6 percent in the first seven months of 2015 as compared to the same period in 2014. In only a few short months, China, which had previously been a lifeline to Brazil, has become a huge risk for the country's economy. Brazilian leaders have been widely criticized for being too reliant on China for economic support.
In Europe, Germany's economy is also at risk of loss from reduced Chinese demand, as Germany excels in producing factory tools, and a slowdown of the Chinese economy may hinder purchase of such items.
Staying Strong(ish) Inside
Despite the havoc brought to the global stage by China's struggles, there is some comfort to be had in the fact that China's service industries such as restaurants and healthcare continue to rise, keeping money flowing within the country to keep the country's entire economic outlook from falling further.
Likewise, this week's decision by the Chinese government to end the one-child policy will certainly have an impact on most sectors, with analysts largely predicting a positive outcome, at least in the immediate, as these long-neglected Chinese become able to partake more actively in society.
But perhaps the greatest challenge to the Chinese economy is a per capita GDP of around $6,000 (about one-sixth of the US per capita GDP, by way of comparison) which prevents the country from really building a consumer-led economy. Doubling the country's per capita GDP can help reverse the country's economic problems from within by injecting spending at double the current level, but the country's leaders haven't yet seemed to formulate a plan for reaching this goal.
Following five years of a strong Chinese economy it's both startling and scary to see how the mighty have fallen. However, with a more realistic view of China's contribution to the global economy, countries worldwide can readjust their expectations and look for alternate ways to close their own economic gaps. Taking a look at the world's economy in this way may be healthy and helpful not only for those outside of China, but from within as well.