The Impact of China’s Economic Situation on Europe

The collapse of the Shanghai stock market at the end of August (a downward correction of 37% since 12th June) has brought back to the fore the inherent weaknesses in China’s current economic development. The country’s decreasing growth to 7% over the first six months of the year (with an annual forecast of 6.7% for 2015 according to the OECD), thereby falling to its lowest level since 2009, is indeed a source of concern with regards to its impact on global growth as well as its short and midterm consequences for China’s main trading partners, primarily the European Union, the United States and Asia. Some observers believe that the country might even fall into recession if its GDP growth were to drop down to 3% or 4% [1]. Others envisage a crisis scenario, pointing out a loss of credibility of the Chinese government and expressing real doubts over its ability to engage into fully effective measures to successfully manage the country’s vital economic transition, including reforming notably state-owned enterprises. But the Chinese economy still retains many assets favourable to managing the necessary transition towards greater consumption as well as promoting future growth. This is further supported by significant foreign exchange reserves despite recent capital outflows. It remains, nevertheless, that China’s image has changed and that every forecast now inevitably points towards a long-term slowdown of the Chinese economy. So the question arises: With what impact and consequences for Europe?

This policy paper was produced for the Robert Schuman Foundation.

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