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How will China's 'Black Monday' affect UK business?

China's once-surging economy has accounted for 15% of global GDP and 25% of global GDP growth in recent years. On Monday 24 August 2015 however, the country's stock markets fell by 9% and sent a shock wave through the financial world.

Global impact  

Although foreign investors own just 2% of shares in China, Chinese growth has driven the global economy through the recession. Monday's slump spooked markets worldwide: Japan’s Nikkei fell by 4.6%, the US DOW index dropped by about 4% and European indexes fell by between 4-5%.

‘Black Monday’ has prompted suggestions that China's bull run may be over. Observers fear that the country's economy is about to enter a spell of moderate growth, or follow the Japanese economy by becoming stagnant. Either change would have far reaching implications, not least for UK businesses.

Potential repercussions

When considered alongside China’s decision to devalue the yuan, the latest stock market fall has contributed to speculation that the country’s enormous manufacturing and export industry may be losing steam.

This means that commodity prices, especially crude oil, are likely to continue to fall. For some UK businesses, this could mean that energy and raw material costs will decrease.

A slowdown in Chinese growth may also cause the Bank of England to hold off on planned interest rate hikes. Great news for businesses in debt and those planning to borrow.

Long-term prognosis

While it may seem that China's slump has a silver lining, a full recession would further damage the North Sea oil industry and dampen demand for specialist UK products that the Chinese market currently buys in large volumes.

Falling commodity prices would cause emerging markets like Brazil, South Africa and Turkey to take a serious hit, meaning that demand for UK products could also slow in these countries. This change would put the UK in a difficult position; with interest rates already low, the Bank of England has few tricks left to stimulate domestic demand.

While commentators remain divided on whether or not this dip in China's fortunes is a sign of things to come, businesses in the UK should play it safe when managing their finances. If your business is struggling with unpaid debt or you’re keen to improve your cash flow, contact Dukes Bailiffs today.

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