Sunday, October 04, 2009

Assessing China’s Role in the Post-Crisis Economy

Sources: Will the BRICs (read: China) really become the new global growth engine?
World Bank: After the Crisis?
Economist: China's place in the world

China celebrated its 60th anniversary on Oct. 1st with a huge military parade, showcasing its rise as an economic power. Unlike others, China has been recovering faster from the global slowdown and is expected to grow 8.2 percent this year. However, to what extent will China’s economic growth contribute to demand and growth in the rest of the world?

While China’s economic growth will continue to contribute to global growth, it will not be “driving” growth in the developed countries, said Deutsche Bank Research's Markus Jäger in his report to Vox. Even before the recent global financial crisis, China’s contribution to global growth was already substantial, amounting to up to 20 percent. This figure would continue to rise up to 30 percent by 2014.

However, Mr. Jäger said that Chinese economy’s contribution will not be enough to offset slower growth or reduced demand in the U.S. Recently, Chinese imports have been growing and its current account surplus is forecast to decrease from 10 percent to 5 percent of GDP this year. A fall in China’s net exports by $160 billion would be equivalent to 0.3 percent increase in demand in the rest of the world. Assuming China’s bilateral trade surpluses fall in equal measure, China’s net imports increase would only add less than 0.1 percent of GDP to U.S. final goods in 2009.

World Bank president Robert Zoellick also emphasized China’s limited role in his speech on Sep. 28th. Although China is acting “as a stabilizing force” in the global economy, China’s future is uncertain. China’s recent rapid rebound is engineered by the government’s stimulus program (or credit expansion), and the government is likely to limit the program for fear of inflation. Mr. Zoellick said that it will not be easy for China to increase domestic consumption enough to rebalance the global economy.

Discussion Questions:
1. What are other factors that could limit the Chinese economy’s role as a global growth engine in the post-crisis economy?
2. What kinds of policies could the Chinese government adopt in order to increase domestic consumption?
3. How could other developed and developing countries contribute to global growth?

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