Why slump shouldn't put us off doing business with China
Napoleon allegedly said: "China is a sleeping giant. Let her sleep, for when she wakes she will move the world." Well, the sleeping giant is now well and truly awake, and last week fears of economic turbulence were moving not just Chinese, but global stock markets. But why does China now matter so much to the world economy, let alone to Northern Ireland?
Much of the answer comes down to the numbers. In 2014, if we take GDP adjusted by purchasing parity price differences, China finally overtook the US to become the world's largest economy, but that was no accident.
In the 1980s and 1990s, Deng Xiaoping, then the Chinese Communist Party leader declared: "It doesn't matter what colour a cat is as long as it catches mice." His pragmatic re-introduction of a degree of market economics sparked an upsurge in growth, and for several decades annual output grew by about 10% every year.
Even in recent years, if the available statistics are taken at face value - and there has been some dispute about those figures - annual growth rates have been about 7%.
The prospect of China as number one in economic terms may take some getting used to, but we should not really be surprised. After all, it has occupied that position for most of the last 2,000 years. The economic historian Angus Maddison estimated that it was only in the mid-19th century that western Europe and the US began to overhaul China, and we can see now that the subsequent period of Western dominance was quite short-lived.
What does seem likely is that the Chinese economy is now slowing down. This is partly because growth rates of 10% could not be sustained indefinitely, and partly because of severe adjustment problems. Previously, the Chinese economy relied on investment and exports to drive growth, but since domestic consumption is now of larger economic importance, it will take time for the economy to re-gear.
A hard landing in China is still a possibility, and that could mean an Oriental version of the credit and debt crisis that afflicted most of the rest of the world during 2008-9. However, this is probably not the most likely scenario.
What is perhaps more likely is that the relatively low levels of Chinese living standards, at least by Western standards, will experience substantial future growth, although not the phenomenal rates of the 1980s and 1990s. In fact, it is possible that later in this decade, rates of growth in India will overtake those in China, but then India has a lot of ground to make up compared to its Asian neighbour. One of the fascinating questions for the next few decades will be which country - China or India - has the best set of institutions to maximise economic performance over the long term.
Does slower growth in China matter to us Northern Ireland? Yes it does, and this is so even though the direct exposure to the Chinese market is relatively small.
Whilst Northern Ireland's export sales to China are now probably of the order of £90m out of total manufactured export sales of about £6bn, the Chinese market has considerable indirect impacts on Northern Ireland. For example, the current difficulties in the dairy market reflect in part a reduction in Chinese demand for milk powder. China now represents about a half of global demand for powder. In addition, as the Chinese economy slows, we should expect a further depressive effect on some of the other major markets which Northern Ireland relies on, notably the US and the Eurozone.
Nevertheless, the current turbulence in China should not discourage Northern Ireland businesses from engaging with China. In fact, Northern Ireland's economic engagement has some very deep roots. Going back to the period, between 1863 and 1908, the inspector general of the Maritime Customs Bureau for the Chinese Empire was a man from Portadown, Sir Robert Hart. And with those sort of connections, we should take the Chinese relationship with Northern Ireland very seriously indeed.
In next week's Economy Watch, we hear from Ulster Bank's chief economist, Richard Ramsey