There have been a lot of stories, admittedly in this publication too, that have diminished the threat of the current trade war with China for the US economy. In a very direct sense, that may be true, but there is a lot of misunderstanding about the Chinese economy. Most people think that China is currently slowing because of the trade war with the US, but that is not really the case. The much bigger issue is that the country’s credit boom has run its course and the government is running out of options to boost growth. The credit boom was caused by the government needing to stimulate consumer spending in an effort to spur a domestic consumption economy, but credit has more or less reached it limits, and therefore, so has the economy.
FINSUM: If China has a big contraction/meltdown, it will ripple across all the countries who are part of its ecosystem, including all the EMs in the region, Africa, and then ultimately the big developed economies with which it is now inextricably linked.