What does the economic slump in China mean for UK businesses?

To understand, it’s important to realise what brought about the crash. China has long been accused of adopting unsustainable growth policies. Its government has relied heavily on investment-driven growth by pumping money into so-called “white elephants”. Empty housing blocks, shopping malls and even motorway flyovers to nowhere have all been hot air blown into the GDP bubble. In the manufacturing sector, a “build it and they will come” attitude has led to a surplus that isn’t met by domestic construction and consumer demand. Companies have even aggressively farmed hired land in Northern Laos and battalions of fishermen have attempted to fish in Korean waters.

For UK businesses, a fall in confidence in Chinese markets may only have small practical implications. Only 3.7% of UK exports go to China and, according to London Consultancy Capital Economics, foreigners own just 2% of Chinese shares. 

However, British companies that are involved in commodity trading are expected to suffer. After benefiting from the inflating effect of Chinese growth for many years, the slowdown has caused prices in oil and minerals to drop as Chinese appetite diminishes. The fall will not only affect British oil and mining companies as banks such as Standard Chartered who operate in China will face economic friction in the immediate future.

Britain’s relationship with China is, famously, more about imports than exports. Lower oil prices and cheaper Chinese imports would spell good news for the wider UK economy, therefore. Interestingly, the latest Chinese stock price fall has benefited currencies such as the recently maligned yen and Korean won and can only mean good news for the pound.

Overall, the current position of the Chinese economy does not have a huge bearing on the UK. After all, it’s not America. Yet.

 

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