The fortunes of the world’s emerging economies once rose or fell in lockstep with China. No longer.
Ruchir Sharma, Morgan Stanley Investment Management’s chief global strategist, writes that in recent years we’ve seen a gradual decoupling of GDP growth between the Asian giant and the world’s smaller economies. Now Covid-19 has collapsed the link altogether. China is growing more slowly as its government imposes lockdowns to combat the virus, all while reining in its real estate moguls and tech oligarchs.
“China may not matter as much as it once did,” argues Sharma.
International businesses are starting to reach a similar conclusion. Increasingly, companies that once focused their global strategies on China, extrapolating its high growth rates far into the future, are now planning less with the nation in mind.
For instance, after Covid-19 highlighted the risks of concentrating supply chains in China, multinationals began looking at places like Mexico and Thailand to produce goods for the rest of the world. Some are bringing their supply chains home, a process of “reshoring” enabled by advanced manufacturing technologies like robotics and 3-D printing.
Nobody argues that China no longer matters, of course. It is, after all, the world’s biggest trader, manufacturer and lender.
Nor is there any evidence that multinationals in China are pulling out. In fact, surveys of U.S. businesses in the country (by definition the ones doing well, others having packed up and left) mostly plan to double-down on their investments. And although the regulatory crackdown on big tech that wiped out trillions of dollars in shareholder value prompted claims on Wall Street that China is “uninvestable,” record sums of venture capital are flooding in.
Rather, it’s dawning on investors that there are attractive alternatives. For instance, while China’s economy is sinking, Taiwan and South Korea are on a roll, boosted by their market dominance in semiconductors that are powering the digital revolution. As Sharma points out, the same forces of technology are transforming larger emerging economies, including Indonesia and India, which are building opportunities around mobile internet technologies.
As online payments and digital loans soar at some of the fastest rates worldwide, money is pouring into India’s financial technology sector at an unprecedented pace. Above, offices at the New Delhi headquarters of fintech firm BharatPe on Oct. 5.
Photographer: Anindito Mukherjee/Bloomberg
And the coming “green revolution” is lifting prospects for producers of metals like copper and aluminum that come from emerging economies—among them Peru and Chile. All of this helps to explain why China’s share of global GDP growth has plunged from 35% before the pandemic to 25% today.
Moreover, for just about all investors in China, the risk calculus is changing. I pointed out last week that the decision by the Women’s Tennis Federation to stand up for tennis star Peng Shuai was a rare case of a Western organization placing principles above profits in China. But the group almost certainly input revenue calculations into its decision-making, perhaps concluding that the potential financial hit might not be as catastrophic as one might think.
Just ask the U.S. Professional Golf Association. China was supposed to be its next big market, the game having slumped in the U.S. when Tiger Woods lost form. Developers on Hainan Island laid out 10 golf courses side-by-side across a stretch of land 1-½ times the size of Manhattan.
But the growth of the sport didn’t survive President Xi Jinping’s early austerity drive (he prefers proletariat soccer to bourgeois golf.) Bulldozers moved in and ripped up scores of Chinese golf courses. Meanwhile, the game in America has spectacularly revived.
The Mission Hills Resort Haikou in Hainan Province, China
Photographer: Brent Lewin
There’s a broader lesson to be learned there. It’s not a given that China’s economy will overtake the U.S. in aggregate size. And even if it does, it will do so with fading momentum, held back by an aging population and massive debt.
These days, Chinese state media confidently proclaim that Xi has brought China “closer to the center of the world stage than it has ever been.” In March, the Chinese president boasted to the national legislature that China’s supposed victory over Covid-19 was the result of “self-confidence in our path, self-confidence in our theories, self-confidence in our system, self-confidence in our culture.”
Yet China is hunkering down and the virus still very present. The country is largely sealed off from the world by quarantines. Mao Zedong’s “self-reliance” slogan is back as the country invests in home-grown technologies and boosts its domestic consumer markets.
Meanwhile, as Sharma notes, emerging markets that once thrived primarily by selling parts and raw materials to the world’s factory floor are also gaining confidence. “Now, they have more options,” he said. So does everyone else: an enduring consequence of the coronavirus may be that global investors have seen other opportunities in the world beyond China.
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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
