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Why China Could Tip the World Into Recession

Sisyphus, a Greek mythological figure dammed to endlessly roll a huge boulder up a steep hill, analogous to the world markets that always seem to roll down once they reach the top. (Image:Franz Stuck/Wikimedia)
Sisyphus, a Greek mythological figure dammed to endlessly roll a huge boulder up a steep hill, analogous to the world markets that always seem to roll down once they reach the top. (Image:Franz Stuck/Wikimedia)

According to the head of Morgan Stanley Investment Management, Ruchir Sharma, if China’s slowdown continues, it could drag the global economic growth down to below 2 percent. This is viewed by the expert as a value equivalent to a global recession.

It would be the first worldwide drop over the past 50 years without a U.S. decline being the reason for it.

“The next global recession will be made by China. Over the next couple of years, China is likely to be the biggest source of vulnerability for the global economy,” Sharma says.

As China investment bubble crashes and stock values fall, many commoners are literally left with debt upon debt. (Image:Screenshot/YouTube)

As China’s investment bubble bursts and stock values fall, many common investors are literally left with debt upon debt. (Image:Screenshot/YouTube)

Although China’s growth is slowing, its influence has increased. China is the world’s second-largest economy, with a  population of 1.4 billion. China was responsible for 38 percent of the global growth in 2014, according to Morgan Stanley.

The Asian country is the world’s largest importer of copper, aluminum, and cotton. In 2012, it bought more cars than America, and its consumers purchased more mobile phones than the rest of the world added together, according to The Economist.

A Washington-based lender said the “greater difficulties” in the country’s change to a new growth model might be a risk to the global recovery. One reason might be that the old model is investment driven, a model that, as the recent stock market crash shows, is not really feasible anymore. According to Chinese political authorities, the country is expecting a growth of 7 percent this year.

Investors like Sharma are now cautious of Chinese stocks and those from countries that depend on China for growth—these include Brazil, Russia, and South Korea. However, he favors companies in eastern Europe and smaller Asian countries, like the Philippines, Vietnam, and Pakistan.

The recent market collapse has challenged some investors’ long-held opinion that the Chinese authorities have control over the economy and markets.

“What happened in China last week was so significant in that for the first time, you’ve got this sign that something is out of control. Confidence damage is going to last for a while, said Sharma”.

It’s hard to neglect the Chinese economy’s far-reaching impact on the world, from smaller towns to big markets. This could be interpreted as a big responsibly. Every decision China’s leaders make seems to have an impact on the world for better or for worse.

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