Impact on the World
China is a manufacturing powerhouse, which means the global supply chain depends on it. While the US contributes 17% of the total global manufacturing output and Japan merely 8%, China accounts for almost 30%.
To understand the importance of China, let’s look at semiconductors. The world’s biggest companies today are focusing on artificial intelligence, which spans technologies like deep learning, machine learning, natural language generation, virtual agents, biometrics and robotic process automation. While AI was the single most powerful driver of US stock rallies in the second quarter of 2023, the future of this technology depends on semiconductor chips.
The US-China “chip war” has escalated with China curbing exports of germanium and gallium, which are used to manufacture semiconductors and electronics. China has the power to cripple the global economy with this move.
The global labour market is also impacted significantly by China’s job creation. The high unemployment rate in the red dragon renders any global economic growth too fragile to sustain. Sporadic growth in the global labour market impedes the employability of the youth, by reducing their on-the-job skill development and experience.
Let’s also not forget that China is a large consumer. Any slowdown in consumption in China will impact some of the largest companies, from Tesla to Starbucks. Metal exporters, including Australia, South Africa, Hong Kong, the US, Japan, and Indonesia, are particularly susceptible to a decline in demand from the world’s biggest consumer. The Australian dollar has been highly volatile due to China’s wavering prospects, as over 60% of Australian exports are consumed by the red dragon. South Korea and Taiwan are also feeling the heat, with a double-digit decline in their shipments of high-tech goods to China, in the first six months of 2023.