China's economic growth can soften U.S. slump
Emerging economies are now big enough to help but not save Western giants.
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One sign of worry about global financial "contagion" is the performance of stock prices: Shares in banks outside the US have fared worse than US banks themselves over the past three months, and stock markets in emerging nations, Europe, and Japan have all fallen even harder than Wall Street.Skip to next paragraph
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When they met in Tokyo last weekend, however, finance ministers from the world's largest economies, the Group of Seven, said "emerging-market economies are forecast to continue robust, if slower, growth."
Developing countries have the edge for a couple of reasons. They are playing catch-up to richer nations, and many of them have benefited from boom times for commodities such as oil. In the process, they have come into their own as global economic forces.
From Bahrain to Brazil, people are busy building bridges, information networks, even whole cities. They are selling goods and services to one another, not just to Americans. And they are buying more products than ever from advanced nations – a boon to now-struggling economies like the US.
In China, for example, the real engines of growth are not the export factories selling the world clothes and computers, though that visible sector has fueled a $260 billion annual trade surplus. "The lion's share of Chinese GDP growth is domestic, and not a function of the international economy", says Daniel Rosen, head of the New York-based China Strategic Advisory consultancy.
Past global downturns have not slowed China
Even if Chinese exporters take a hit, previous trade slumps have had practically no ripple effect on the Chinese economy, points out Mr. Kroeber. This time, he predicts, "there is no question China will lose a little GDP growth in the export sector, but they will gain some back in investment."
China's race to build more roads, railways, homes, and factories contributed most to its 11.4 percent GDP growth last year, and that boom is set to continue, or even gather steam, says Kroeber, pointing to official plans to triple investment in railroads this year.
Even if falling exports of Chinese consumer goods to America and Europe cut 2 percentage points off last year's growth rate – a common prediction – "the fact that China is not tanking will be a comfort" to economic planners elsewhere, says Mr. Rosen.
It will also mean that China will continue to import raw materials and high-technology machinery. "In the commodities field, China will be very important and, at the margins, it will certainly help the US and Europe," says Paul Cavey, chief China economist for Macquarie Capital Securities.
A historic shift
The biggest implications are for the developing countries themselves. China and India are relatively immune to trade shocks. And with Brazil and Russia exporting commodities whose prices Chinese demand is expected to keep high, "the emerging market bloc suddenly starts to look much stronger going into a slowdown," says Mr. Anderson.
"That's unusual," he adds. In past recessions, he recalls, "trouble brewing in the big industrialized economies spelled trouble in the developing world. This time, we are not looking at that."