China to go hunting for more markets

China's economy posted its last quarter of 'normal' growth. The numbers look strong due to front-loading of exports to beat Trump-tariffs. The world's second-largest economy coasted along with industrial output - essentially manufacturing exports - outpacing the overall economy. Domestic consumption underperformed, dragged down by lingering effects of a property market bust. This picture is set to change appreciably over the next few quarters as the US and Chinese economies begin to decouple, and Beijing is forced to provide households with a big enough stimulus to revive spending. But China's anticipated fiscal stimulus, on the back of energetic monetary easing, is unlikely to offset the impact of US tariffs on its exports, the economy's primary growth driver. Independent estimates see the economy growing a fifth slower than it did last year.

Impact of a Chinese slowdown on the world economy is mixed. China's appetite for commodities feeds inflation, but also props up growth for a large chunk of resource-exporting economies. Also, East Asian economies are integrated into Chinese supply chains, and could see some collateral damage from an extended US-China trade war even if they negotiate better deals with the Trump administration. The Chinese economy will begin to export recession ahead of the US, where embargo on Chinese imports will lead to stagflation. China's economic stall is the more proximate risk to the world economy than US unemployment.

Years of accumulated trade surpluses provide Beijing an enviable fiscal armoury. It has all the tools on hand to avoid a slump. But using them involves political decisions about income distribution. Chinese households, not factories, hold the solution to a global economic slowdown.