China’s economic fickleness could hit Canadian businesses: Expert
China’s economic headwinds and government involvement in business operations could spell trouble for Canadian businesses and the broader global economy, according to experts.
As the country rolls out measures aimed at stimulating its lagging economy, a TD Economics note published Monday offered more analysis on how the recent turbulence in China may affect the rest of the world.
Andrew Hencic, a senior economist with TD, made the case that softness in China’s consumer price inflation (is it “inflation” or “index?”) raises broader concerns for the world’s economy – noting that China’s July headline consumer price index (CPI) entered into “deflation territory.”
“Weak inflation pressures in China indicate tepid domestic demand,” Hencic wrote in the note.
“For the global economy, sustained weakness in China’s economy will limit the potential for upside surprises on commodity prices.”
RISK TO CANADIAN BUSINESSES
Margaret McCuaig-Johnston, a senior fellow at the University of Ottawa’s Graduate School of Public and International Affairs, said risks are higher today for Canadian businesses looking to expand into China than they were about five years ago.
In an interview with BNN Bloomberg, she highlighted that Chinese Communist Party officials involved with companies are “taking a stronger role and sometimes replacing management decisions with their own.”
As a result, she said some Canadian companies are looking to expand their operations into other countries in the region.
“We’ve seen significant problems in Canadian and other foreign joint ventures in China, with the Chinese partner moving to take over not just the technology, but the entire joint venture and taking the (intellectual property) with it,” McCuaig-Johnston said.
This phenomenon is playing out as the country faces a “multitude of problems” in its economy, she noted, and argued that the Chinese government has an “inclination to interfere rather than bring in long-term reforms”
China is currently experiencing lower levels of consumer demand, according to McCuaig-Johnston, who said its gross domestic product (GDP) figures flattened out to 0.8 per cent from April to June. During that same period, she said exports declined 10 per cent year-over-year as youth unemployment rose to 21.3 per cent – prompting the government to stop publishing that data.
“Rather than put in place measures to boost youth employment, they’ve decided not to show their stats on that factor anymore,” McCuaig-Johnston said.
Decreased transparency around economic data in the country has resulted in lower levels of business confidence, she added.
“They’ve also given a general direction to their economists to stop talking about what their work is and what they’re finding,” McCuaig-Johnston said.
This article was reported by BNNBloomberg
