Macroscope | Is China decoupling from the global economy? Evidence shows otherwise
- The divergence of China’s economic policies and performance from the rest of the world, particularly the West, has fed the decoupling narrative
- But global trade and investment flows show the opposite is happening – foreign businesses and funds remain highly invested in Chinese markets
However, in the European Union, gross domestic product expanded by a stronger-than-expected 2.1 per cent in the third quarter of 2021. What is more, economic output across the entire OECD club of rich countries surpassed its pre-pandemic level. In financial markets, the benchmark S&P 500 equity index managed to stay in positive territory for the quarter despite a sharp sell-off in September.
All this data feeds a narrative that the global economy and markets are decoupling from China. Exponents of the decoupling thesis point to emerging markets in particular, which are less correlated with Chinese growth than they were a decade ago.
In a provocative report published last October, Goldman Sachs argued that China should be treated as a separate asset class and dropped from emerging market stock indices to help investors exploit opportunities in other major developing economies.
