Abstract

■ Cracks in the Wall, our core scenario for China (60% likelihood) envisions growth of +6.8% this year and +6.5% in 2016, costing the world 0.1pp of GDP growth so far. Lower export growth, decelerating investment, less favorable financing mix and misperceptions of policy orientation are the underlying causes for this slowdown; the stock market crash was a mere artefact. 

■ Though domestic consumption is set to remain solid, Government and Central Bank support will eventually ramp up to address remaining instability. However, corporate insolvencies will increase by +25% in 2015, and +20% in 2016. Sectors at risk include: Construction, metals and mining, low-end manufacturing and exportrelated industries.

■ Overall, the impact on global growth will be limited (-0.1pp of GDP) but dramatically uneven. In the next 6months, commodity exporters will particularly feel the heat. Indonesia and Malaysia, Peru and Chile and South Africa are tier 1 of impacted countries. Other countries linked to China’s manufacturing value chain (such as Taiwan) are also at risk.

■ Alternative scenarios (sharper contraction – 30% and excessive stimulus – 10%) are also considered but remain less likely. All in all, China’s new model is taking shape but it does not go unnoticed.