 "China falters, and the global economy is forced to adapt")
The commodities giant BHP Billiton spent heavily for years, mining iron ore across Australia, digging for copper in Chile, and pumping oil off the coast of Trinidad. The company could be confident in its direction as commodities orders surged from its biggest and best customer, China.
Now, BHP is pulling back, faced with a slowing Chinese economy that will no longer be the same dominant force in commodities. Profit is falling and the company is cutting its investment spending budget by more than two-thirds.
China's rapid growth over the last decade reshaped the world economy, creating a powerful driver of corporate strategies, financial markets and geopolitical decisions. China seemed to have a one-way trajectory, momentum that would provide a steady source of profit and capital.
But deepening economic fears about China, which culminated this week in a global market rout, are now forcing a broad rethinking of the conventional wisdom. Even as markets show signs of stabilising, the resulting shock waves could be lasting, by exposing a new reality that China is no longer a sure bet.
China, while still a large and pervasive presence in the global economy, is now exporting uncertainty around the world with the potential for choppier growth and volatile swings. The tectonic shift is forcing a gut check in industries that have built their strategies and plotted their profits around China's rise.
Industrial and commodity multinationals face the most pressing concerns, as they scramble to stem the profit slide from weaker consumption. Caterpillar cut back factory production, with sales of construction equipment in China dropping by half in the first six months of the year.
Smartphone makers, automobile manufacturers and retailers wonder about the staying power of Chinese buyers, even if it is not shaking their bottom line at this point. General Motors and Ford factories have been shipping fewer cars to Chinese dealerships this summer.
It is not just companies reassessing their assumptions. Russia had been turning to China to fill the financial gap left by low oil prices and Western sanctions. Venezuela, Nigeria and Ukraine have been heavily dependent on investments and low-cost loans from China.
The pain has been particularly acute for Brazil. The country is already faltering, as weaker Chinese imports of minerals and soybeans have jolted all of Latin America. The uncertainty over China could limit the maneuvering room for officials to address the sluggish Brazilian economy at a time when resentment is festering over proposed austerity measures.
The weakness in China is even compelling officials at the United States Federal Reserve to think more globally, as they consider raising interest rates. William C Dudley, the president of the New York Fed, said on Wednesday that a September rate increase looked less likely than it did a few weeks ago.
"The entire world is focusing now on China, watching this crisis unfold," Armando Monteiro Neto, Brazil's minister of development and foreign trade, told reporters on Tuesday in Brasília. "Brazil is already feeling the effects of China's deceleration. If the situation gets worse, the impact will get bigger."
The trouble is, the true strength of the Chinese economy - and the policies the leadership will adopt to address any weaknesses - is becoming more difficult to discern.
China's growth, which the government puts at seven per cent a year, is widely questioned. Large parts of the Chinese service sector, like restaurants and health care, continue to grow, supporting the broader economy. But the signs in industrial sectors, in which other countries and foreign companies have the greatest stake through trade, paint a bleaker picture.
Adding to the worries are recent events like the deadly explosion of a hazardous chemicals warehouse in Tianjin, which has delayed shipments through one of China's biggest ports. Labor protests, already rising, jumped sharply across coastal China last week over unpaid wages at struggling export factories.
The leadership, concerned with maintaining social stability, has been quick to act, making aggressive moves to prop up the stock market, inject money into the financial system, and generally stimulate the economy. But President Xi Jinping doesn't have much experience managing a downturn, and some economists worry that the government is making knee-jerk decisions that will do more harm than good.
Many company executives and global economists say that forecasting China's growth has become so hard that they are hedging their bets for the time being. "This is a complete black art right now," said Tim Huxley, the chief executive of Wah Kwong Maritime Transport Holdings, a large Hong Kong shipping company. "I can't make any long-term decisions based on what is happening today, and so I just keep our fleet running until we get a bit of direction."
The problems have been building for months in areas like commodities and industrials where just modestly slowing growth in China has been having outsize effects.
For more than a decade, prices surged for iron ore, a main ingredient in making steel, as new skyscrapers, rail lines and other infrastructure were built across China.
© 2015 The New York Times News Service
Now, BHP is pulling back, faced with a slowing Chinese economy that will no longer be the same dominant force in commodities. Profit is falling and the company is cutting its investment spending budget by more than two-thirds.
China's rapid growth over the last decade reshaped the world economy, creating a powerful driver of corporate strategies, financial markets and geopolitical decisions. China seemed to have a one-way trajectory, momentum that would provide a steady source of profit and capital.
But deepening economic fears about China, which culminated this week in a global market rout, are now forcing a broad rethinking of the conventional wisdom. Even as markets show signs of stabilising, the resulting shock waves could be lasting, by exposing a new reality that China is no longer a sure bet.
China, while still a large and pervasive presence in the global economy, is now exporting uncertainty around the world with the potential for choppier growth and volatile swings. The tectonic shift is forcing a gut check in industries that have built their strategies and plotted their profits around China's rise.
Industrial and commodity multinationals face the most pressing concerns, as they scramble to stem the profit slide from weaker consumption. Caterpillar cut back factory production, with sales of construction equipment in China dropping by half in the first six months of the year.
Smartphone makers, automobile manufacturers and retailers wonder about the staying power of Chinese buyers, even if it is not shaking their bottom line at this point. General Motors and Ford factories have been shipping fewer cars to Chinese dealerships this summer.
It is not just companies reassessing their assumptions. Russia had been turning to China to fill the financial gap left by low oil prices and Western sanctions. Venezuela, Nigeria and Ukraine have been heavily dependent on investments and low-cost loans from China.
The pain has been particularly acute for Brazil. The country is already faltering, as weaker Chinese imports of minerals and soybeans have jolted all of Latin America. The uncertainty over China could limit the maneuvering room for officials to address the sluggish Brazilian economy at a time when resentment is festering over proposed austerity measures.
The weakness in China is even compelling officials at the United States Federal Reserve to think more globally, as they consider raising interest rates. William C Dudley, the president of the New York Fed, said on Wednesday that a September rate increase looked less likely than it did a few weeks ago.
"The entire world is focusing now on China, watching this crisis unfold," Armando Monteiro Neto, Brazil's minister of development and foreign trade, told reporters on Tuesday in Brasília. "Brazil is already feeling the effects of China's deceleration. If the situation gets worse, the impact will get bigger."
The trouble is, the true strength of the Chinese economy - and the policies the leadership will adopt to address any weaknesses - is becoming more difficult to discern.
China's growth, which the government puts at seven per cent a year, is widely questioned. Large parts of the Chinese service sector, like restaurants and health care, continue to grow, supporting the broader economy. But the signs in industrial sectors, in which other countries and foreign companies have the greatest stake through trade, paint a bleaker picture.
Adding to the worries are recent events like the deadly explosion of a hazardous chemicals warehouse in Tianjin, which has delayed shipments through one of China's biggest ports. Labor protests, already rising, jumped sharply across coastal China last week over unpaid wages at struggling export factories.
The leadership, concerned with maintaining social stability, has been quick to act, making aggressive moves to prop up the stock market, inject money into the financial system, and generally stimulate the economy. But President Xi Jinping doesn't have much experience managing a downturn, and some economists worry that the government is making knee-jerk decisions that will do more harm than good.
Many company executives and global economists say that forecasting China's growth has become so hard that they are hedging their bets for the time being. "This is a complete black art right now," said Tim Huxley, the chief executive of Wah Kwong Maritime Transport Holdings, a large Hong Kong shipping company. "I can't make any long-term decisions based on what is happening today, and so I just keep our fleet running until we get a bit of direction."
The problems have been building for months in areas like commodities and industrials where just modestly slowing growth in China has been having outsize effects.
For more than a decade, prices surged for iron ore, a main ingredient in making steel, as new skyscrapers, rail lines and other infrastructure were built across China.
© 2015 The New York Times News Service