China is in the midst of an economic downturn that some experts worry could impact Canada’s economic situation.

The latest data show Chinese exports dropped 14.5 per cent in July, while growth in the second quarter missed expectations.

As of Friday morning, global stocks were on track for their biggest weekly loss since March as amid worries about the implications of China’s economic woes.  

Foreign investors pulled more than US$208 million out of the Chinese stock market on Thursday, representing the ninth consecutive day of outflows. Meanwhile, the government began telling banks to step up intervention in the currency to prevent a rapid depreciation of the Yuan, sources told Bloomberg.


With Canada reliant on China as a trading partner, David Rosenberg, founder a president of Rosenberg Research, believes the domestic commodities industry could take a hit.  

“Commodity markets really hitch to China and the Chinese economy is reeling, it’s not getting better and it’s probably on the precipice of heading into a recession,” he said in a Thursday television interview.

If a Chinese downturn does in fact hurt Canada’s commodities industry, Rosenberg expects a ripple effect to will felt all through the TSX.

“They still account for half of the demand for basic materials and that’s such a big component of Canadian corporate profits and such a big share of the TSX,” he said. “So when you’re drawing that chart of what’s happening with the TSX recently, you can tie right back to these escalating problems that occurred in China over the past couple of months.”

Andrew Brenner, head of global fixed income at NatAlliance Securities, said China’s economy is “in a free fall” and in need of substantial restructuring. He expects the entire world will feel the downturn, though he doesn’t expect North America to be hardest hit. 

“We expect the ripple effect to be deflation worldwide and a real hard landing for Europe, because that’s where China does a lot of their business,” he said in a Thursday television interview with BNN Bloomberg. 

“We expect things to really be bad in the European Union over the next six to 12 months, just because China is ceasing to be operational.”


Avery Shenfeld, managing director and chief economist at CIBC Capital Markets, said China’s economic downturn could be helpful in Canada’s fight against inflation.

“Bad news abroad is never good news for a trading country like Canada,” he told “Although we are in a point in the business cycle where we were using interest rates to slow the economy down, and to some extent, this will help that process.”

Shenfeld also doesn’t buy that Canada’s exports will be hurt substantially, but might instead shift to some growing nations. 

While Canada doesn’t ship its oil or copper to China, the world price for both commodities is dependent on China as a major consumer. Shenfeld believes oil prices could drop as Chinese demand drops, which would have a ripple effect on Canada’s oil companies. 

“(China’s economy is) a negative for our resource exports, but it's not as much of a negative as it would be if some of this wasn't China being supplanted by economic growth in places like Mexico, Vietnam and even India,” he said.

Jimmy Jean, vice-president, chief economist and strategist at Desjardins, also suggested China’s economic downturn could help the Bank of Canada. 

“The unique inflation circumstances in China, where producer and export prices are in deflation, are reverberating externally,” Jean wrote in a newsletter earlier this week.

“Since China is a major global manufacturing hub, the price decline is influencing import price indexes in countries reliant on Chinese imports.”

Earlier this week, Statistics Canada reported July inflation of 3.3 per cent -- a slight uptick compared to June, but not enough to warrant another rate in September, most experts predict.