The economic activities the world over are now, primarily, China-driven. The 'big brother" US and its allies stand nowhere. This has, amply, been demonstrated by the recent developments. The impact of Chinese local currency Yuan devaluation was so wide spread and deep that China's leadership was themselves surprised. Even the New York exchange S&P 500 dropped 7.7 % after Yuan devaluation. Stock markets were rattled. As such, China decided to keep the yuan on a tight leash in the near-term to head off a currency war that could spark a broader financial crisis. The reasons for global effects of a slowdown in China are not far-stretched. world. China is a major exporter, buyer of commodities and having a huge consumer market, it will not just be investors who feel the impact. In July, China's customs agency reported that imports from Australia were down by $15bn dollars on the same period last year - a loss equal to 1% of Australia's GDP. Many other countries also lost out to similar degrees. China's imports overall are down by 14.6% over 2015. And if this decline continues for the rest of the year - or worsens - the loss to world economy will be colossal. Let us see how it could happen. China's neighbors are tied in to its manufacturing processes. Agricultural produce is important to Brazil and New Zealand. Some countries supply China with oil and gas, while some far-away places in Africa and South America provide it with metals and other primary materials.China is now the number one trading partner for most African countries. In an effort to make the buying and selling of goods much easier, some states introduced the yuan into their foreign exchange system. In 2011, the Nigerian Central Bank pledged to store between 5%-10% of its foreign reserves in yuan, alongside dollars and euros. At the time, the Chinese economy had the highest growth rates in the world And European countries are surprisingly tied in, often for luxury goods. The manufacturing sectors of China, Japan, South Korea and Taiwan are intimately connected. Vietnam is the exception. Its China-bound exports have been resistant to decline, in some months actually increasing year-on-year. Australia and New Zealand are both heavily exposed, to the value of several percentage points of GDP.. Australia's huge mining industry generates its trade, while New Zealand's is principally from farming, especially dairy. China's insatiable demand for natural resources saved most African nations from the 2008 financial crisis. But now there is a double whammy from declining exports to China and the broader fall in commodity prices that has followed. UN latest figures illustrate how investment in extraction industries has had the effect of making several countries dependent on Beijing for large parts of their export sector.
In Europe, Germany is exposed, both for luxury cars and precision machinery. Belgium exports diamonds to China.Among South American country Chile is most exposed as it exports copper to China. In dollar terms, the United States stands to lose heavily, but as a percentage of the vast US economy the loss is less severe. Canada hasn't seen big falls in its China-bound exports. The Energy exporting Middle-East countries are also feeling the pinch as exports to China including uranium from Jordan has decline. Saudi Arabia and Qatar may fid other buyers for their oil and gas, but the China effect is driving down all commodity prices. Taxes on commodity exports are expected to plunge, hitting already stretched government budgets.China has run down its foreign exchange reserves by $340 billion from mid-2014 to the end of July. It may decline further. Although, it was a knee-jerk reaction, yet further devaluation of Yuan could trigger severe loss to World economy.
In Europe, Germany is exposed, both for luxury cars and precision machinery. Belgium exports diamonds to China.Among South American country Chile is most exposed as it exports copper to China. In dollar terms, the United States stands to lose heavily, but as a percentage of the vast US economy the loss is less severe. Canada hasn't seen big falls in its China-bound exports. The Energy exporting Middle-East countries are also feeling the pinch as exports to China including uranium from Jordan has decline. Saudi Arabia and Qatar may fid other buyers for their oil and gas, but the China effect is driving down all commodity prices. Taxes on commodity exports are expected to plunge, hitting already stretched government budgets.China has run down its foreign exchange reserves by $340 billion from mid-2014 to the end of July. It may decline further. Although, it was a knee-jerk reaction, yet further devaluation of Yuan could trigger severe loss to World economy.