China’s Weakening Economy May Disrupt Global Supply Chains

The long-term reasons for China's weaker growth have not substantially changed – a slow grind of old industries and excess investment. According to Brian Jackson, China economist at IHS Global Insight, services will remain the leading driver of GDP growth in there in 2016 and beyond—despite its larger deceleration,

In H2 2015, a cyclical downturn in financial services added to that pressure, although the impact on GDP will be transitory.

IHS Global Insight expects growth in China to slow to 6.3% in 2016, fueled by modestly lower industrial growth and a larger deceleration in services.

China's economy grows 6.9% in 2015, weakest expansion since 1990

Other observations on supply chain disruptions include these Key points:

• Slowing quarterly growth arose entirely from a deceleration in service sector growth, almost certainly due to falling financial services contributions.
• Industrial and construction sector growth accelerated, probably pulled up by moderately faster industrial sector growth, especially in the heavy manufacturing segment. Full year growth registered at 6.9%, decelerating at the same pace as a year prior.
• Quarter-on-quarter seasonally adjusted GDP growth slowed to 1.6%, which is consistent with other month-on-month measures that point to a deepening slowdown early in 2016.
• Final consumption contributed 66.4% of growth in 2015, the highest share since 2000. During 1998-2000 the final consumption share of growth surged as China underwent a major consolidation of its state-owned industrial sector, which dragged on the investment share of growth.
• Currently China is undergoing a structural shift from industry and construction to services that will have lasting impacts on the composition of growth. In 2015, the services share of GDP rose 2.4 percentage points to 50.5%, while services' share of GDP rose steadily over the past three decades, this was the single largest annual gain since 1985.

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