November 8, 2010

Why China May Not Matter Quite As Much As You Think


Ok, it’s true that in China growth of 9.6%—recorded in the year to the third quarter—represents a slowdown and that, according to the IMF, China will account for almost a fifth of world growth this year (just over a quarter at purchasing-power parity).

Yet, when the Bank Credit Analyst, an independent research firm, asked what would happen if China suffered a “hard landing,” its answer was far less apocalyptic than one would expect. In fact, as it pointed out, at the start of the 1990s Japan accounted for a bigger share of GDP than China does today, and notwithstanding this, when in the first half of the 1990s its growth slowed from about 5% to 1% it all happened without any discernible effect on global trends.

It is hard to exaggerate the Chinese economy’s far-reaching impact on the world, but not impossible, after all... Read this October 28th Economist article to convince yourself (if you can).

Thanks: Nicola



Recommend this post on Google!


2 comments:

  1. I couldn't agree less. In the wake of today's economic crisis, the question regarding the impact China has on the global market isn't the same as the situation brought up about Japan's slowed growth in the early 1990s. What Japan experienced was a shift away from economic growth, yes, but this shift occurred in a much stabler time. China is currently one of the few countries that have been weathering the economic crises quite well, and should China's growth slow and its GDP shrink, it would no longer keep afloat the nations that depend on it to boost their own economies. That being noted, it is very hard indeed to overestimate China's economic worth; perhaps even impossible.

    ReplyDelete
  2. Some problems China faces may indicate it's an economic paper tiger. This is an isolated nation. Siberia and Mongolia (frozen desert)on the north, Myanmar, Laos, Vietnam on the south (mountains and jungle), the Himalayas, and the ocean. Tough to move stuff (trade) in that situation. Second thing is most of its population lives on the coast, and there's not much population in the rest of the country. The wealth is on the coast, and those people living a thousand plus miles inland are really unhappy now. They're poorer than poor, and there's a lot of tribalism costing enormous political instability. While the government is trying to expand it's power outward with the constraints mentioned above, there are little insurrections going on that are starting to cost a lot of money and bad tempers. It's quite possible that China may crack up and loose that huge Communist cohesion. This would bode well for Tibet.
    They are still a Communist country, and the view they are becoming more capitalist appears to be smoke and mirrors. The Communists still dictates who gets loans, keeps how much of their profits, etc, and a lot of loans go unpaid and a lot of money gets lost. Non-performing financial institutions get propped up by the Communist Party, and $billions are hemorrhaging out of the economy. Lots of unpaid debts, and we can see here in the US what kind of effect that has on an economy.
    We remember the 1990's economic "miracle" of Japan. They boomed, but have been bust going into their second decade of economic stagnation. China is pursing those same economic polices, and under the Obama administration the US is doing the same. We can look a China's great rate of growth, and it looks good, but given the Japanese model it has a phony foundation bound to bring them much grief. Those poor (literally) inland people will even be more unhappy and restive when driven even deeper into poverty.
    When that economic collapse happens, when the money stops coming in, the Communists will do what they know. Violent suppression, and the economy will shrink even more. The violence won't be limited inside the borders. They still want Taiwan, and I wouldn't put it past them to rattle their sabers in the direction of Japan.
    China has a lot of problems, and we sometimes forget they have issues at least as bad as those we face in the West.
    Our worries may not be so much economic as the threat of war with their overwhelming male population combined with tribal unrest and a crumbling economy when the boom is over.

    ReplyDelete

Related Posts with Thumbnails