China’s economy is entering uncharted territory, and that could spell trouble for the rest of the world.After decades of sharp expansion, the Chinese economy is slowing down. Growth in 2018 is set to be the weakest since 1990. And 2019 looks even worse.The world’s second largest economy is feeling the effects of a darkening trade outlook and government attempts to rein in risky lending after a rapid rise in debt levels.”The drivers of China’s slowdown have yet to have their full impact on the economy, and the combination of both is unprecedented,” analysts at Moody’s wrote in a research note this month. “This creates a high degree of uncertainty and risk.”
What happens in China matters for businesses and markets across the globe. It’s the world’s largest exporter of goods, sucking in materials from other countries in order to ship out iPhones, laptops, bulldozers and tons of other products.
The country’s rapidly expanding middle-class has turned it into the biggest market on the planet for consumer goods like cars, smartphones and beer, generating billions in profits for companies like General Motors (GM) and Apple (AAPL).
“China has become the world’s largest growth engine,” said Rajiv Biswas, chief Asia-Pacific economist at research firm IHS Markit.
Fears about China’s economic health have already rippled through financial markets. The country’s benchmark stock index plunged into a bear market in June and is down 25% since the start of the year. The jitters have also affected markets in Europe and the United States.
What remains uncertain is the severity of the slowdown and how far the Chinese government will go in trying to soften its impact.
The big wild card is how the trade war between the United States and China, which began this year, will play out in 2019.