Ratings agency Moody’s forecasts that the Chinese economy will strengthen in 2023 and 2024, but anticipates that in the medium term “growth prospects are likely to continue to slow due to structural factors”, impacting emerging markets.
“In the medium to long term, however, China’s growth prospects are likely to continue to slow due to structural factors such as an ageing population and declining productivity.
In this scenario, there would be negative consequences for emerging markets other than Asia Pacific,” Moody’s said in a report released today.
The document noted that China’s trade relationship with several of these markets has involved buying raw materials and selling them processed, exporting the final products to the rest of the world.
Latin America exports to China mainly soy, copper and oil, Russia and Saudi Arabia oil and petrochemicals and South Africa precious stones and metals.
“China has overtaken the United States of America as the main economic partner of Brazil, Chile, Peru and Uruguay, but this relationship also highlights the vulnerabilities of these economies to a structural slowdown with a centre in China,” the document states.
In turn, Mexico, which is closer to the US, has “less trade exposure to China than its regional neighbours.
In addition, Moody’s addresses foreign direct investment, which is more concentrated in some economies in South America – such as Argentina (24%), Ecuador (29%) or Peru (15%) – which are thus exposed to a Chinese slowdown.
Also, contract investment by Chinese entities under the New Silk Road has slowed in Asia, even if there has been less of a slowdown than in Latin America and sub-Saharan Africa.
“We see the New Silk Road initiative as a significant long-term economic and geopolitical strategy for the Chinese government and expect a resumption of direct investment abroad and in the relocation of overcapacity industries, thereby creating jobs for Chinese workers abroad,” Moody’s stresses.
Between 2014 and 2022, cumulative investments related to this initiative totalled US$125 billion in Latin America, with Argentina, Brazil, Chile, Ecuador, Peru and Venezuela accounting for over 80% of the amount.
In sub-Saharan Africa, investment following the New Silk Road totalled US$123 billion, highlighting the dependence of certain economies on Chinese funding.