How would the economic slowdown in China affects its trade partners

Abstract

Since the economic reform of China's opening to the outside world in 1980s, the total volume of China's international trade has grew dramatically, it attracted several billions of dollars of importing from other countries all over the world and China’s foreign trade has made great progress and become the a significant engine to fuel economic growth. China has become a significant importer for many countries in international trade markets. This study investigates how the economic slowdown in China in recent years can have impact on its trading partners through the international trade channel. This paper conduct a gravity model of trade to study on countries’ exposures to China, we explore yearly trade data of China’s 30 main leading exporter from 1990 to 2020. The effect is a complicated picture in different countries and main findings of this paper can be summarized as follows: Some developing countries such as India, Malaysia, Thailand, Saudi are exposed to China mainly because they produce goods for Chinese domestic market and they are exposed to advanced economies because they export primary products such as components and parts to China for processing and re-export to developing western countries. There countries which mainly export commodity goods includes Saudi Arabia, Indonesia, Australia, Brazil and and those exporters of capital goods and sophisticated consumption includes Germany and Japan are more likely to be affected by the slowdown in Chinese domestic market. In this paper, we also conduct imperfect substitutes model to estimate import elasticity of China. According to the results, processing imports of China are closely linked to processed exports from China to other countries in all around of the world, and ordinary imports has direct and close relation with Chinese GDP.