The Sentinel

Issue date: 5/4/09 Section: Commentary

American GDP shrank by 6.3% in the fourth quarter, and many economists believe that the most recent quarter could be even worse. As the United States and the world economy prepare for one of the worst recessions of the post-World War era, experts warn that China's growth could slow to as little as 5% next year. While for the United States this would be seen a phenomenal year in almost any circumstance, 5% growth for China is seen as a hard landing. Should growth be even lower, China will be facing serious domestic issues related to income and job growth.

The Chinese government has set 8% as the target for growth in 2009. This will allow job creation to keep up with population growth and new job seekers.
Unlike the United States, China needs near double digit growth to keep the growing middle class economically stable. Most experts doubt that China will meet that goal. The World Bank and the IMF believe it will be closer to 6.5%, while others such as economist Nouriel Roubini (also known as Dr. Doom for his accurate and dire predictions of the U.S. economy the last few years) see it slowing down to 5%.
Chinese economic growth relies heavily on exports to the United States and the European Union. The massive drop in international trade has led the U.S. to have eight straight months of falling imports, and in fact the U.S. trade deficit has shrunk to its lowest level since 1999. All of this means the U.S. has cut back radically in imports from China and other countries. Rising trade barriers by many major economies have further hurt China's export-oriented economy.

More worrisome is that China doesn't have a history of a sustained weak growth since the 1970s. The Chinese government has always operated with a kind of implicit agreement with its citizens. The government guarantees economic growth and rising standards of living, and the Chinese public doesn't agitate for more rights or political freedoms. It is a delicate balance, with China having to balance authoritarian crackdowns against reasonable freedoms. Partially due to a lack of democratic institutions which the public can use as outlets for problems, the Chinese government is forced to deal with constant riots and protests over various local issues.


A Chinese collapse or even instability would have devastating consequences for an already weakened global economy. China owns more than half a trillion dollars of U.S. debt and is one the largest trading partners of both the European Union and the United States. In addition the Chinese economy is the third largest in the world, and is projected to have the largest growth of any major economy in the upcoming year. Internal unrest would destroy billions of dollars of foreign investment and may lead to political crackdowns or even regime change.

Continued...

Page 1 of 2 next >

Article Tools