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SHANGHAI: With fears mounting of a global economic slowdown, some
analysts predict developing giants China and India, with their
booming growth, will help lessen the impact.
Stock market turmoil this week triggered by
fears of a US recession in the wake of a massive mortgage crisis has
ignited debate over whether Asia’s two rising economic stars are
strong enough to power the world economy.
This directly challenges the 20th-century
economic adage that when the US economy sneezes the rest of the
world catches a cold.
“What is occurring is the rise of other
economies to balance out those of the US—and that has to be a good
thing,” said Chris Devonshire, a business consultant specializing
on China and India trade.
“The US has problems but these will be offset
against markets elsewhere. The new world order is working,” he
told AFP.
China saw scorching expansion of 11.4 percent
last year, closely followed by India’s 9.4 percent, and the
prospects for both economies remain strong.
“We expect China and India to support regional
growth in the event of a significant slowdown in the US,” said ING
Barings Asia economist Prakash Sakpal.
Such a shakeup is significant because jobs and
livelihoods are at stake, but also because, as financier George
Soros wrote in the Financial Times, it could signal a major shift in
economic power.
“The current financial crisis is less likely
to cause a global recession than a radical realignment of the global
economy, with a relative decline of the US and the rise of China and
other countries in the developing world.”
But Zhang Ming, an economist at the Chinese
Academy of Social Sciences, dismisses the notion that the Chinese
and Indian economies are independent of US consumption.
“If you want to look at who is going to be the
motor of global growth then you have to look at who provides the
biggest market for the world’s production of goods,” said Zhang.
“In the short run America is still strongest.
China still has a long way to go.”
China, whose $3.4-trillion economy is about
one-third derived from exports, could easily face economic
difficulties if it were to lose the 2.5 growth percentage points
garnered from trade, said Stephen Green, a Standard Chartered
economist.
However, Indian exports represent only about 17
percent of its $1.1-trillion gross domestic product, allowing it
greater resiliency in the face of a US recession, analysts said.
“Our economy is geared to domestic demand. We
are insulated so that even if there is a US recession it will not
have such a direct impact on the Indian economy,” said Federation
of Chambers of Commerce and Industry economic adviser Anjun Roy.
But given that India’s share of world trade in
2006 stood at 1.5 percent, it is not in a position to boost the
world economy, Roy said, citing official statistics.
According to data published by the World Trade
Organization, China’s merchandise exports last year totaled 8.0
percent of the world total, while imports stood at 6.4 percent. No
cumulative figure was provided.
However, Stephen Roach, a leading economist as
head of investment bank Morgan Stanley in Asia, said this week that
the idea China and India could power the world economy on their own
could “turn out to be a fantasy.”
Roach, who is forecasting a US recession, also
argued in a recent note that when the US consumer is in trouble this
has great consequences for the world economy.
He calculated that the American consumer spent a
combined $9.5 trillion last year while Chinese only laid out $1
trillion and Indians $650 billion.
“It is almost mathematically impossible for
China and India to offset a pullback in American consumption,” he
said.
-- AFP
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