CHINA is such a large and important part of the global economy that what happens there has implications for the rest of the world. Following an unprecedented 30-year period of growth of over 10 per cent, there has been a deceleration of Chinese economic growth, which is beginning to adversely affect the rest of the world, starting in Asia, but manifested globally, particularly in commodity exporting countries in Africa and Latin America.

The Chinese economy is beginning a transition from export-led growth to a process in which domestic demand plays a greater role. This transition is accompanied by a slowing in the rate of economic growth, which is being mistakingly interpreted as the demise of the Chinese model and economy.

It is likely that economic growth will decline from the 10 per cent per annum trend line to average between five and eight per cent per annum in the immediate future. The International Monetary Fund (IMF) has described the process as China moving to a “new normal” of slower yet safer and more sustainable growth.

The authorities in China have recognised that its economy is caught in an interaction between some long-term structural problems and short cyclical factors. It has sought to cauterise the effects of speculative exuberance in its stock exchange and to counteract declines in international price competitiveness by exchange rate adjustment. China’s central bank has also cut its benchmark interest rate and allowed banks to lend more in an attempt turn around the slowing economic growth.

The outlook is difficult to predict because of the unique nature of China’s economy, whose performance has confounded economic pundits over the 30 years. Whatever happens will have an impact on the world economy. Hopefully the Chinese authorities will be able to stabilise the economy and maintain high growth rates because this has been one of the engines of economic growth for the global economy which is still in the doldrums.

Fortunately, the nascent growth in the United States appears to be consolidating with the continuation by the Federal Reserve’s policy of very low interest rates.

Oil prices have remained low and that is not affected by China’s demand for oil which has slowed in tandem with economic growth. There is plenty of supply capacity and there is the prospect of Iran’s resumption of more oil exports. This abatement in oil prices will ease the pressure on the exchange rate and help to keep inflation moderate.

The implications for Jamaica do not seem to be too serious at this time. Jamaica does not depend as heavily on the export commodities, and therefore slumping commodity prices should have minimal impact. Tourism will be largely unaffected because our two most important source countries, the US and Canada, are doing reasonably well. Similarly, remittances should be unaffected, although the United Kingdom economy continues to struggle.

The ability and willingness of the Government of China to fund construction projects in Jamaica should not be impaired by recent developments. The fluctuations in the Chinese stock market could prompt a switch by investors to direct foreign investment — a prospect Dr Peter Phillips might find worthy of investigation.