It is the US, and not China, that can lead the recovery.

The global economic crisis must end where it began, namely in the US. A modest 3 per cent growth in the US would mean a lot more to the global economy, especially the East Asian economies, than double-digit growth in China.

The world’s most populated country has moved up the development ladder rapidly, fuelled by blazing double-digit growth rates. Its export-led growth strategy has paid handsome dividends. It is already the fourth-largest economy in the world and the second-largest in Asia. In purchasing-power-parity terms, China recently replaced Germany as the third-largest economy in the world.

Appalling numbers and statistics, which give only a pale idea of what China could eventually be when fully developed. At least, if economic development should continue at such pace and with no actual rules and constraints.

The global economic downturn has affected China, too, slowing down its economy: not only by the slump in external demand for its manufactures, especially in the United States and Europe, but also by its own exposure to the financial meltdown in the US. A large chunk of China’s vast foreign exchange reserves are in dollar-denominated papers, and they could not avoid being negatively hit by the fnancal crisis. As a result, China’s exports has shrunk at the rate of 30 to 40 per cent year-on-year, in the first half of this year, while growth performance has slowied down to 7 to 8 per cent from 12 to 13 per cent previously.

Still, China is not in recession, it continues to attract foreign direct investment (FDI), unlike most developing countries where FDI  inflows have dried up. Its external reserves are still growing, recently surpassing the US$2 trillion level despite falling exports, while many others are headed in the opposite direction.

The World Bank recently upgraded China’s growth for this year to 7.2 per cent from 5.5 per cent. China posted an even more impressive 7.9 per cent growth in the second quarter.

Some observers think China will lead East Asian economic recovery and thereby spearhead a global economic turn-around. Others say, though, this faith in China as saviour may as well be misplaced.

China’s imports from the rest of East Asia consist mostly of raw materials, intermediate products and components and parts, the bulk of it turned into manufactures for exports. Consumer products’ imports from the region account for no more than a small proportion.

China’s imports from its neighbours have plummeted in the wake of the slump in China’s own exports, although the Chinese economy is growing at 7 to 8 per cent, because China depends largely on domestic production for its own consumption, which does not spill over to the rest of the region through trade.

For China imports from neighboring countries to grow, it’s  the demand for China’s exports in the US and European markets that must recover first.

China cannot possibly grow at double-digit pace until the US economy is completely out of the woods. China cannot substitute the US as the main locomotive for the world economy, even if it were to replace the US as the world’s largest economy. Chinese consumption is unlikely to be anywhere near that of the US, even if the Chinese economy were big enough to rival the US$14 trillion American economy.


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