Thread by @michaelxpettis

1/11
Kevin Rudd makes some important points in this article, but he also writes: "The implications for the global economy from such a scenario are very real. China represented 28 per cent of all global growth between 2013 and 2018 — twice that of the US.

ft.com/content/d9ce37…

2/11
A significantly slowing Chinese property market would mean slower global growth, with a particular impact on commodities that service construction."

3/11
Rudd may be expressing a confusion — one that many others have too — between China's share of global growth and China's contribution to global growth. It is true that China has accounted for the biggest share of global GDP growth in...

4/11
recent years, but China's contribution to global growth is something quite different, and is expressed through its balance of payments. Any future Chinese slowdown will affect global growth, in other words, mainly through the evolution of its trade and capital accounts.

5/11
To put it schematically:

1) A Chinese slowdown will be bad for the global economy if it is accompanied by a larger current account surplus (unless more than 100% of the increase is accounted for by increased capital flows to developing economies).

6/11
2) A Chinese slowdown will be good for the global economy if it involves a contraction in China's current account (unless more than 100% of the contraction is accounted for by increased capital flows to advanced economies).

7/11
In the past China's deficient domestic demand, exported through its current and capital accounts, has reduced net global demand, and so has been a drag on global growth even as the Chinese share of global growth has increased. But if a Chinese slowdown is associated...

8/11
with a real rebalancing of domestic demand — as is likely, and as occurred in the case of Japan in the 1990s — China's surplus will contract and, as it does, it will add net demand to the global economy. In a world of weak demand, that will be positive for global growth.

9/11
That doesn't mean that some countries wouldn't suffer. As Rudd notes, falling prices for industrial commodities will hurt their exporters, but of course this just means that countries that import industrial commodities will especially benefit.

10/11
The main point is that as China slows, the global economy is likely overall to be slightly better off, not significantly worse off, depending on how it rebalances. As always, the case of Japan as its own economy shifted from the great imbalances of the 1980s is revealing.

11/11
Japan accounted for 24% of global growth in the five years to 1991 (more than the US), but when its growth rate collapsed from nearly 5% to just over 1% in the 1990s, global growth rates were largely unaffected, and US and European growth actually accelerated.