Finally, The Economist has published a story, An Old Chinese Myth, which confirms the decoupling of Asia ex-Japan is actually real. A recession in the US is welcome in China, as it will help to moderate China’s growth at the margins, something that its macro-economic policy has not had much success in doing. In any event the article is a good read, and if you are investing in China, this is welcome news for you too.
An American downturn will cause China’s economy to slow. But the likely impact is hugely exaggerated by the headline figures of exports as a share of GDP. Dragonomics forecasts that in 2008 the contribution of net exports to China’s growth will shrink by half. If the impact on investment is also included, GDP growth will slow to about 10% from 11.5% in 2007. This is hardly catastrophic. Indeed, given Beijing’s worries about the economy overheating, it would be welcome.
The American government frequently accuses China of relying excessively on exports. But David Carbon, an economist at DBS, a Singaporean bank, suggests that America is starting to look like the pot that called the kettle black. In the year to September, net exports accounted for more than 30% of America’s total GDP growth in 2007. Another popular belief looks ripe for reappraisal: it seems that domestic demand is a bigger driver of China’s growth than it is of America’s.
With China’s true export-to-GDP ratio at under 10%, and NOT as high as the Headline exports-to-GDP ratio of 37%, a US slowdown would perhaps have the impact of an interest rate hike on the Chinese economy. This may just what the doctor ordered in China’s case.
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