Ireland shouldn’t sneeze at the untold benefits of China catching a chill

One of the things that fascinated me with our standard map was just how big Greenland appeared to be. It looked to be about the same size as Africa. It still does if you look at a map today.

But of course the map is deceptive.

In reality, Africa is larger than the US, China, India, Mexico, Peru, France, Spain, Papua New Guinea, Sweden, Japan, Germany, Norway, Italy, New Zealand, the UK, Nepal, Bangladesh and Greece put together. In fact, Africa is around 14 times larger than Greenland.

But a standard map doesn’t indicate this because of the difficulty of portraying a spherical object, the Earth, on a flat page.

Do not also underestimate the biases and prejudices that went into compiling our standard view of the world. In an era of Victorian domination, it made sense to put the UK and Europe at the centre of the world and shrink the size of those countries that the Europeans were busy crushing.

These sorts of prejudices still inform the way we look at the world. For example, in the economic sphere at least, the US is still considered the most important country. All major recessions have, up to now, been “Made in America”.

Traditionally, the world can’t falter if the US is doing well and vice versa. This is because, like the European 19th-century cartographers and their jaundiced view, we are driven by a US-centric bias that puts the US at the centre of the economic and financial world.

Take the 2008 collapse. We accept and understand the narrative that the recent decline started with the US subprime failure, which led to the collapse of Lehman’s, which in turn caused the world’s financial markets to seize up.

The impact around the world was enormous, and the fragility of other so-called miracles, such as the Irish one, were exposed to be little more than dressed-up Ponzi schemes.

What actually makes the US powerful is the extent to which the rest of the world gets the flu when the US catches a cold. It is the ability to project both your power and your distress that makes a country a superpower.

But what if the world has changed and recessions or slumps no longer have to be “Made in America”? Imagine that global recessions could be projected from somewhere else.

Consider whether the next global slump could be “Made In China”.

Up to now, “Made in China” meant manufactured goods coming out of a box. “Made in China” is tangible and, for most consumers, positive. If China can project its power positively through cheap iPhones, washing machines, computers and the like, could it not project its distress through financial markets?

Could the next global recession emanate not in the $16trn US economy but in the $10.4trn Chinese economy?

In recent months, what was a small problem in China has turned into a major worry.

First, China’s growth rate has slumped to its slowest pace since 1990. Meanwhile, China’s trillion-dollar shadow banking system and both the Beijing and local government borrowings have built up the biggest debt load in the history of humankind, which is now a staggering 250pc of GDP.

Could it go the way of Japan? Could 30 years of amazing economic growth, which Japan experienced from 1960 to 1990 and China experienced from 1985 to 2015, lead to a lost decade in China as it did in Japan?

Certainly, the 2015 $4trn bloodbath in the Chinese stock market looks similar to the collapse of the Japanese property market in 1990. And we know that this property slump led to many years of deflation in Japan.

What does this mean for us in Ireland or Europe, when China is so far away? Can it be that important?

In the same way as the maps tell you that Greenland is as big as Africa, our mind map of China still tells us that it is in the manufacturing business and is small compared to the US.

Not so.

Valued at $10trn, China is the world’s second-largest economy. It is the largest export destination for 40 countries worldwide. It is the world’s largest importer of copper, coal and steel. In 2014, China contributed 38pc to global growth.

We have seen the total collapse in the price of crude oil, copper and iron ore from $190 a metric tonne two years ago to $48 now. This means some markets believe China is not only slowing down but going bust.

All these fragile financial markets, as well as the glittering cities in the Gulf and the fortunes of massively leveraged countries such as Brazil, Australia and Turkey, are based on Chinese demand and lots of cheap money sloshing around the globe. What if this Chinese slump comes at the same time as the US raises its interest rates – as Janet Yellen suggested this week?

What does all this mean for Ireland? Well, it could be positive.

In recent months, the main winner has been the US dollar as investors flock there because the rest of the world looks so volatile. This will continue pushing the euro below parity with the dollar. In addition, the deflation stemming from China, added to the ongoing slump in peripheral Europe, will force European inflation downwards. This will cause Mario Draghi to announce another bout of money printing, pushing the euro down further. This will also keep interest rates down here for a while longer.

A rising dollar against the euro will make Ireland an even cheaper destination for US foreign investment; so expect an increase in investment in Ireland in the period ahead. Also, low interest rates will make people feel they are not as indebted as they actually are, so consumer spending and confidence here will remain buoyant.

This is a perfect backdrop for canvassing.

Wouldn’t it be interesting if the timing of an election here was also “Made in China”?

Maybe it’s not only our maps we should redraw and rethink, but our whole way of looking at the world.