China has become the main engine of the world economy, accounting for one-third of global GDP growth in the first half of this year. Will it keep humming?
Compared with many other emerging economies, notably Brazil and Russia, which have recently suffered big capital outflows, China has so far largely shrugged off the global credit crunch. But there are signs that China’s economy is sputtering.
More generally, China’s banks should be better insulated from the global credit crunch than Western banks because the country’s system is funded through deposits rather than capital markets. Chinese banks’ loans amount to only 65% of their deposits, compared with far higher ratios in America and Western Europe.
A fall in house prices will in any case hurt Chinese consumers much less than their American counterparts because Chinese households are not up to their necks in debt. Total household debt amounts to only 13 percent of GDP, against 100 percent in America.
Chinese consumer spending actually strengthened this summer, with retail sales rising by 17% in real terms in the year to August. The main impact of the property downturn will be to depress construction.