Macroscope | The world now catches a cold if China sneezes, not the US

“When the US sneezes, the world catches a cold” is a common phrase used to describe the significance of the US economy in the global macro system.

But in recent years, more and more people have applied the same metaphor to China, as the latter grows in size and influence, and starts to project its economic power globally.

There is nowhere that China’s influence is better manifested than in Asia. Economically, China accounts for 32 per cent of total regional trade and its economy is almost half of Asia (ex Japan)’s GDP. For many countries, China is now their largest trading partner and a growing source of foreign direct investment.

China’s rising middle class, with a strong desire to spend, has unleashed a flood of tourists, helping to revive tourism and retail industries in countries like Thailand and Korea. Finally, financial market ties have been strengthened as China opens up its capital account and liberalises the yuan.

The close economic integration with China has brought clear benefits to many Asian countries by allowing them to access the biggest consumer market in the region.

But at the same time, it also makes Asia vulnerable to China’s economic slowdown. Slowing demand from China since 2011, when headline growth started to decelerate, was a key contributor to the sluggish export performance of many Asian countries in recent years.