Has the Dragon Caught a Cold

China is now the key economy affecting world trade, commodity prices and growth expectations across the globe, more than ever before. During the 1990s few economists were predicting China’s growth to accelerate so rapidly, the Government had been opening up markets since 1978 with only gradual growth taking place. However, several drivers coincided to provide a boost to the Chinese economy and critical to these was entry into the World Trade Organisation in 2001 together with the spread of the internet and subsequent improvements in global supply chains and communications.

China itself is changing with a mass movement of the population from a farming background to urban, manufacturing employment and to comparative middle-class prosperity. Traditionally a nation of savers, China is fast becoming a nation of spenders. The speed at which China is expanding comes at a cost as they rapidly become the No.1 polluter, a title not encouraged in today’s ethical world.

Also nowadays individual market wobbles have a big impact on the world economy as recent events have shown. The Chinese Market, measured by the Shanghai A Share Index, is up over 267% since June 2005 so although a loss of 8.8% in a single day at the end of February seemed a lot, it is not too significant when you consider that only the previous six days gains were wiped out. However, the effect of this shock was felt by economies across the world sending markets tumbling and was quickly christened ‘Grey Tuesday’.

Recent figures show the Chinese economy has now overtaken that of the UK as the globe’s fourth biggest economy and is set to overtake the US in top spot by 2026. So one thing is becoming clear, when the Dragon sneezes we all feel the effects.

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