How Slow Can China Go?

Forbes looks at how a slowdown in the Chinese economy is impacting those who supply China with the resources that have fueled the country’s economic growth:

On Wednesday, Chief Executive Tom Albanese said the Chinese economy is “pausing for breath” amid global turmoil, which will mean softer demand for Rio’s minerals.

The warning, delivered in the Anglo-Aussie miner’s third-quarter operations review Wednesday, hit China-linked mining stocks hard in London, Sydney and New York trading. On the New York Stock Exchange, Rio Tinto (nyse: RTP – news – people ) shares tumbled 20.5%, or $39.72, to $154.27, while its would-be acquirer and rival BHP Billiton (nyse: BBL – news – people ) plunged 19.3%, or $7.23, to $30.17.

The Baltic Dry Index of shipping rates also tumbled.

Yet, according to an editorial in the Economist (via the Seattle Post-Intelligencer), China is well-situated to survive the worst of the global financial crisis:

China’s banks should also be able to withstand falling house prices better than their American counterparts. In America it was easy to get a mortgage for 100 percent or more of the value of a home, but Chinese buyers must put down a minimum deposit of 20-30 percent, depending on the home’s size, and as much as 40 percent on second homes. This provides banks with a large buffer as prices fall.

Loans to property developers are riskier and banks’ profits will be hurt as developers go bust. But according to Wang Tao, an economist at UBS, these loans account for only 7 percent of total bank lending.

More generally, China’s banks should be better insulated from the global credit crunch than Western banks because the country’s system is funded through deposits rather than capital markets. Chinese banks’ loans amount to only 65 percent of their deposits, compared with far higher ratios in America and Western Europe.

See also “Exporters come to terms with global slowdown” from China Daily.



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