How about China’s economy tanks?

The Chinese housing bubble is at risk of bursting due to economic imbalances. If China’s housing bubble bursts, a shockwave will reverberate through its economy, causing a dramatic slowdown that will spread around the world. Utilizing a powerful new simulation tool, we forecast how a “hard landing” for China would impact the global economy.

China’s business climate is uncertain and growing more so by the day. Cheap china trade credit and a ballooning shadow banking sector in the past few years drove a massive increase in new lending, which fueled a red-hot real estate market and excess construction. As the economy cooled, the massive housing supply ramp-up resulted in high vacancy rates in some Chinese cities, which led to steep price discounts on new properties and rising default rates among smaller property developers.

Global corporations are watching China closely, wondering what will happen next. If the situation were to spiral out of control, they must be able to evaluate the impact on their business quickly and make appropriate course corrections. For instance, what does a hard landing in China mean for interest rates, trade, capital investment, commodity prices, and consumer demand, not only in China but in Europe, India, the US, and elsewhere? The more variables they can control to simulate possible scenarios, the better prepared they will be to respond to the one that actually unfolds.

Using a new econometric simulation tool called the Global Link Model, IHS is able to quantify the impact of economic shocks and regulatory changes to test a wide range of scenarios on the global economy. The model includes 68 countries and is linked to sector-specific econometric models, enabling users to see how changes in the macro-economy impact sectors and companies, as well as how changes at the micro level influence overall economic developments.

This article examines the consequences of just one scenario: a hard landing in China and the impact it would have on both the Chinese economy and the global economy. We define a hard landing as annual GDP growth for China of less than 5%. See the table at the end of this article that captures the impact on GDP growth for 15 of the largest economies in the world.

Shanghai Composite up: China stocks higher at close of trade

China stocks were higher after the close on Friday, as gains in the Gas, Water&Multiutilities, Technology Hardware&Equipment and Technology sectors led shares higher.

At the close in Shanghai, the Shanghai Composite rose 3.51%, while the SZSE Component index added 5.24%.

The best performers of the session on the Shanghai Composite were Tengda Constr (SS:600512), which rose 10.09% or 0.440 points to trade at 4.800 at the close. Meanwhile, Yunnan Yunwei (SS:600725) added 10.08% or 0.660 points to end at 7.210 and Ancai Hi-Tech (SS:600207) was up 10.08% or 0.620 points to 6.770 in late trade.

The worst performers of the session were Petrochina SS (SS:601857), which fell 1.72% or 0.230 points to trade at 13.170 at the close. Jiangzhong Phm (SS:600750) declined 1.61% or 0.700 points to end at 42.770 and Bank Of China SS (SS:601988) was down 0.96% or 0.050 points to 5.180.

The top performers on the SZSE Component were Huamei Holding (SZ:000607) which rose 10.05% to 11.61, Guangxi Liugong Machinery Co Ltd (SZ:000528) which was up 10.05% to settle at 10.51 and Zhuhai Port Co Ltd (SZ:000507) which gained 10.04% to close at 8.00.

The worst performers were Anhui Deli Household Glass Co Ltd (SZ:002571) which was unchanged 0% to 18.46 in late trade, Beihai Yinhe Industry Investment Co Ltd (SZ:000806) which unchanged 0% to settle at 26.90 and Anhui Zhongding holding Parts Co Ltd (SZ:000887) which was unchanged 0% to 24.75 at the close.

Rising stocks outnumbered declining ones on the Shanghai Stock Exchange by 949 to 9.

Shares in Anhui Deli Household Glass Co Ltd (SZ:002571) unchanged to 52-week highs; unchanged 0% or 0 to 18.46.

The CBOE China Etf Volatility, which measures the implied volatility of Shanghai Composite options, was down 5.94% to 30.23.

Gold for August delivery was up 0.02% or 0.20 to $1144.10 a troy ounce. Elsewhere in commodities trading, Crude oil for delivery in August rose 0.18% or 0.09 to hit $51.00 a barrel, while the September Brent oil contract rose 0.47% or 0.27 to trade at $57.19 a barrel.