China's Economy Will Be Hurting. Unless It Isn't.
Elliot Ng over at CnReviews just came out with a very thoughtful post analyzing China's economy. The post is entitled, "Global financial crisis will hurt China much more than the US," and it says China's economy is based on a three legged stool, two of which are weak. The three legs are "export-led growth," "real property growth," and "government spending." Right now, only government spending is still strong. The post pulls from a number of leading economists and analysts to conclude that China's economic future will not be good and that we can expect China's economy to slow to 5-6 percent yearly growth.
I tend to agree with the analysis of this post, but whenever dealing with economic predictions, I always feel compelled to throw in the caveat that they only tend to be accurate if all assumptions hold true, which they hardly ever do. I was one class short of an economics major, which means I studied just enough to know that economist's predictions are correct about half the time.
On a somewhat less gloomy note:
An economist, a physicist and a chemist are stranded on an island with one unopened can of food. The physicist suggests they roll the can down a hill where it will strike a rock which will pierce the can and release the food. The chemist suggests they cool the can in the ocean then heat it in the sun so as to cause the can to burst. The economist suggests they assume they have a can opener.
Let's hope for the can opener.
Comments (3)
Read through and enter the discussion by using the form at the endBen Gee - November 30, 2008 8:50 AM
Economists and politicians always have opinions vary from one extreme to the other. Predictions of China's 2009 growth range from a lowly 5% up to 10% and every thing in between. Some even say today's crisis will hurt the Chinese economy more than the US's.
Today, China is better than China ever was in 5000 years. People are better fed, clothed, housed,and travelled. When disasters strike, Chinese people can expect the best relieve program available anywhere in the world. Whether China grows by 5% or 10% China will be better off tomorrow than today. Even at 5%, China will double its output in less than 15 years. At 10%, China will double its output in 7 years. With unemployment? People are already moving back to the countryside. With new policy stimulating the rural development, people can expect improvement in the countryside in the not too distance future.
Is China,s foreign trade going to suffer? Yes, some sectors are having great difficulty. But other sectors are booming. Chinese exports grew by over 19% in October. China,s foreign trade with some countries went up as much as 50% this year.
Elliott Ng - November 30, 2008 11:34 AM
Thanks for the shout out as always, Dan.
The 5-6% estimate is actually Nouriel Roubini's description of what a hard landing looks like in China. He (nor I) actually put forth a specific prediction, although its clear from Roubini's article that he is very pessimistic.
But it seems that the internal Party demand for social stability will try to spur domestic growth any which way they can. If it is in the form of fiscal stimulus or domestic consumption, then that's great. But predatory export policies won't be good.
I think your caveat about economic predictions are great. In fact the problem with the US economy is that we have been "assuming" can openers all the way up, and selling can-opener debt obligations and can-opener default swaps all the way up. The Chinese have been willing partners in this endeavor.
Falen - November 30, 2008 5:02 PM
Look, i don't think this Nouriel Roubini dude has ever been to China. He might have been yelling for decade for the economic collapse this year to be sure, but I think given how complex China's system is, one really needs a more empirical observation on the ground. He probably browse through the "numbers" and then plug into his "models" and come to a conclusion.