Financial Times
January 28, 2008
The notion that China, even as its international trade was growing, could somehow be "decoupled" from US consumers or the world economy never made sense. Sure enough, Chinese stock markets have shared in the ups and downs of nervous global equities over the past two weeks despite the limited direct exposure of Chinese banks to US subprime home loans.
China's fast-expanding real economy has also been affected by the global malaise. According to the latest official figures, gross domestic product growth slowed to 11.2 per cent in the last quarter of 2007 as Chinese export growth moderated.
China, however, not only remains a remarkably robust contributor to the global economy; it could also benefit from a cooling-off period after years of frenetic expansion. To put the very modest year-end slowdown in perspective, the Chinese economy in 2007 as a whole grew at 11.4 per cent, the fastest pace in 13 years. Economists believe that south-east Asian nations such as the Philippines and Malaysia will be more vulnerable than China to a slowing of US demand. China has proved adept at moving up the value chain and at seizing market share from its Asian neighbours.
For this year, even pessimists do not predict Chinese growth much below 9 per cent. Although exports are important for some industries and some provinces, the domestic Chinese economy has become markedly deeper and more diversified in recent years. If the outlook does turn grim, the authorities have room for manoeuvre. With the budget in good shape, they can resort to fiscal stimulus. And after repeatedly ratcheting up banks' reserve requirements to reach 15 per cent, they have the scope to introduce a looser credit regime.
China in any case has reason to welcome, not fear, a slowdown. It is worth recalling that only a few months ago economists warned that Chinese GDP growth was too high and therefore unsustainable.
A respite from double-digit growth might have several positive effects.
It could deflate dangerous bubbles in real estate and in Chinese equities. It could - in line with official policy -
relieve the intense pressure on natural resources and the environment imposed by runaway economic expansion. And
an export slowdown could help limit the Chinese trade surplus, thereby disarming the US critics who are certain to become more vociferous as the US election year proceeds.
China is not completely "decoupled" from the world economy. Nor is it overly dependent on US import demand. Right now, that middle ground is an excellent place to be.
Source: FT
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