China's shift will alter how it powers global economy

Mr Adrian Cooper, chief executive of global consultancy Oxford Economics, says global growth is still languishing at around 2.5 per cent and the world "can't seem to get into take-off mode".
Mr Adrian Cooper, chief executive of global consultancy Oxford Economics, says global growth is still languishing at around 2.5 per cent and the world "can't seem to get into take-off mode".ST PHOTO: CHEW SENG KIM

It is becoming a service-driven economy and is less dependent on imports: Expert

China should avoid a hard landing but its shift towards more domestically driven growth means it will no longer power the world economy with the same strength, according to the boss of a global consultancy.

Mr Adrian Cooper, the chief executive of Oxford Economics, told The Straits Times that global growth continues to languish at around 2.5 per cent and the world "can't seem to get into take-off mode".

Advanced economies like the United States and Europe were the main drags on growth in the years following the global financial crisis but new risks have since emerged.

"While the advanced economies start slowly getting back into gear, this is coinciding with a slowdown in China, which has implications for world trade, the rest of Asia and commodity-dependent countries."

Growth is slowing in China "but not at a rate that would alarm Chinese policymakers", noted London-based Mr Cooper, who is in Singapore for a two-day visit.

China - which is Singapore's largest trading partner - is becoming an increasingly service-driven economy, and is now less dependent on imports even for traded goods, he added.

"China is becoming less exposed to international trade, so it's tough for countries with export exposure to China."

This is especially since China's growth is expected to continue moderating. Its economy is expected to grow at about 5 per cent in the medium term, considerably slower than the 10 per cent it has averaged over the past 25 years.

This rate has slowed markedly in recent years amid the Chinese government's efforts to rebalance its huge economy away from investment towards consumption.

"A lot of growth will be domestically generated and met. China is not going to be the same kind of engine for commodity markets and international trade as it was," said Mr Cooper.

Another key risk to global markets is the ongoing uncertainty over the timing of the interest rate hikes in the United States.

Oxford Economics expects a rise in December although this might be pushed back further if US inflation and jobs data remain weak.

"The concerns are that mar-kets are pricing in an extremely slow pace of rate increases," said Mr Cooper.

If interest rates go up more quickly than anticipated, there will be renewed financial market turmoil and further shocks to business confidence, he added.

A version of this article appeared in the print edition of The Straits Times on October 26, 2015, with the headline 'China's shift will alter how it powers global economy'. Print Edition | Subscribe