Asia’s Recovery Highlights China’s Ascendance

Discussion in 'China' started by Koji, Aug 26, 2009.

  1. Koji

    Koji New Member

    Joined:
    May 24, 2009
    Messages:
    758
    Likes Received:
    1
    http://www.nytimes.com/2009/08/24/business/global/24global.html?_r=1&ref=asia


    [​IMG]
    PARIS — In past global slowdowns, the United States invariably led the way out, followed by Europe and the rest of the world. But for the first time, the catalyst is coming from China and the rest of Asia, where resurgent economies are helping the still-shaky West recover from the deepest recession since World War II.

    Economists have long predicted that an increasingly powerful China would come to rival and eventually surpass the United States in economic influence. While the American economy is still more than three times the size of China’s, the nascent global recovery suggests that this long-anticipated change could arrive sooner than had been expected.

    Such a shift would have significant ramifications for the United States and the rest of the West, even after the global economic recovery takes hold.

    “The economic center of gravity has been shifting for some time, but this recession marks a turning point,” said Neal Soss, chief economist for Credit Suisse in New York. “It’s Asia that’s lifting the world, rather than the U.S., and that’s never happened before.”

    China’s government-dominated, top-down economy is surging after Chinese banks doled out more than $1 trillion in loans in the first half of the year, in addition to a nearly $600 billion government stimulus program.

    Though the benefits are manifest, some economists wonder whether China is laying the groundwork for sustainable growth or just increasing its export capacity despite more frugal spending habits on the part of Western consumers.

    “The big question is what happens next,” said Kenneth S. Rogoff, a professor of economics at Harvard. “If the consumer in the United States and Europe doesn’t come back, I’m not sure Asia has a Plan B.”

    But robust demand among Chinese consumers and businesses is one reason oil prices have doubled to more than $70 a barrel since bottoming out early this year, and China is likely to keep buying American debt as Washington borrows heavily to finance its myriad stimulus and bailout plans.

    The United States is also being shoved aside as the make-or-break customer for export-driven nations like Germany and Japan. China overtook the United States as Japan’s leading trading partner in the first half of 2009, while in Europe manufacturers are looking east instead of west.

    “What we’re losing in the trans-Atlantic trade with the U.S., we are gaining in China,” said Jens Nagel, head of the international department of the German Exporters Association.

    In the near term, however, the United States should benefit from a resurgent Asia, as the American economy finally begins growing again, as expected in the second half of 2009.

    “Vigorous rebounds overseas, particularly in East Asia, suggest that U.S. imports and exports will soon improve,” Mr. Soss said.

    Last week, Hewlett-Packard pointed to double-digit revenue growth in China as a rare bright spot in an otherwise lackluster earnings report. Meanwhile, overall American exports to China have already been picking up, rising to $5.5 billion in June from $4.1 billion in January.

    “The numbers are volatile, but the trend is clear,” said Robert Brusca of FAO Economics in New York. “It’s a big contrast with Japan, where U.S. exports are still dropping, but China is different.”

    Of course, other factors have played a significant role in helping the global economy begin to stabilize, including trillions of dollars in support from central banks for frozen credit markets, as well as bailouts and rescues of major financial institutions, insurers and automobile companies.

    But as the engine for future demand growth shifts from the government back to the private sector, and Americans remain wary of returning to their free-spending ways, Asian consumption is expected to pick up at least some of the slack. And if China does slow, as some experts fear it could in the second half of 2009, the United States’ effort to climb out of recession could be that much harder.

    After the recession of 2001-2 and the slowdown in the early 1990s, the American economy served as the global locomotive, said Michael Saunders, head of European economics research for Citigroup.

    Back then, he said, China and other Asian countries lacked huge cash reserves that could buttress them in the event of recession. But in the last decade, China has enjoyed huge trade surpluses with the West, and it holds $2.13 trillion in foreign reserves, solidifying its position as a rapidly emerging economic power.

    Citigroup recently increased its estimate for annual Chinese economic growth to 8.7 percent in 2009 from 8.2 percent, and to 9.8 percent next year from 8.8 percent.

    While economists like Mr. Soss expect that growth to spill over to the United States shortly, the effect is already visible in Europe.

    Indeed, after the French and German economies shocked most economists this month by turning in positive performances for the second quarter, the normally conservative Deutsche Bank released a report titled, “Eurozone Q2 GDP: Made in China?”

    For now, the answer seems to be yes. “It’s quite amazing, because usually Asia doesn’t play such a big role in European exports or output,” said Gilles Moec, senior European economist with Deutsche Bank in London.

    French exports to China and other East Asian economies rose 18.7 percent in the second quarter, according to customs data, a sharp turnaround from the 16.2 percent drop recorded in the previous quarter. Overall exports to the region from the 16 countries that use the euro currency increased 6.3 percent in the second quarter, reversing a 6.2 percent drop in the first quarter, Mr. Moec said.

    While Western European countries have been more timid about embarking on big spending programs because of their already mounting deficits, and European banks took huge hits on their holdings of subprime American debt, Beijing does not face either obstacle.

    In the first half of 2009, Chinese banks lent a record $1.1 trillion in new loans, setting off fears that the lending binge might create a bubble over the long term.

    China’s moves have also helped its neighbors increase industrial production sharply from recession lows. Since hitting a trough in late 2008 and early 2009, industrial production has jumped 28 percent in Korea and 26 percent in Taiwan. In July, American industrial production rose for the first time since December 2007, but it remains just half a percentage point above the bottom in June.

    “Asia is still relatively small in the world, but it reflects how the world is changing, and economic power does translate, of course, into political power,” said Simon Johnson, a former chief economist for the International Monetary Fund and now a senior fellow at the Peterson Institute for International Economics. “You can use it to win friends and influence people, as the Chinese are already doing in Africa and Latin America.”
     
  2.  
  3. Daredevil

    Daredevil On Vacation! Administrator

    Joined:
    Apr 5, 2009
    Messages:
    11,613
    Likes Received:
    5,670
    The key is this. Most of the easy loans went into speculation in stock-markets and real estate thus leading to two bubbles - stock market and real estate bubble. When they explode, it will be downhill for the chinese economy.
     
  4. Koji

    Koji New Member

    Joined:
    May 24, 2009
    Messages:
    758
    Likes Received:
    1
    "China has enjoyed huge trade surpluses with the West, and it holds $2.13 trillion in foreign reserves, solidifying its position as a rapidly emerging economic power.

    Citigroup recently increased its estimate for annual Chinese economic growth to 8.7 percent in 2009 from 8.2 percent, and to 9.8 percent next year from 8.8 percent."

    It's huge cash reserve will decrease the impact of a bubble burst, but it's primary goal is to increase the size of the economy, which it is doing quite well. Get rich first, then deal with the consequences.

    In Japan we went from nothing to being one of the world's wealthiest. Now, we are suffering the consequence of our growth but we are still rich.
     
  5. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,550
    Likes Received:
    6,554
    Chinese economy is on a growth path, the only negative seems to be the US debt holdings China has and is still currently buying this tie to the waist of USA has helped the economy to grow and rise and can possibly also be a limiting factor which will cap the economy from reaching it's true potential and independence.
     
  6. Koji

    Koji New Member

    Joined:
    May 24, 2009
    Messages:
    758
    Likes Received:
    1
    Yes, China is counting on the recovery of the US, but as it says in the article, China is also becoming a dominant player in Europe. It is singlehandedly pulling Europe out of recession.
     
  7. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,550
    Likes Received:
    6,554

    this foreign reserves is mostly in US debt. US bonds have no market, there are no buyers even with US financial institutions, the whole world is avoiding US debt like the plague. The Chinese also have US treasury notes which yield .1% and the also hold US dollars which has depreciated 35-40%, these numbers are also same for countries with these holdings. For Chinese to do trade with USA they get paid in US debt or else there is no trade. The value Chinese place on their holdings and the true market value are 2 very different things. Sub prime holdings are worth 10 cents to 25 cents on the dollar. US government will always have the upperhand with trade with China since they are the only ones who will buy these holdings they will determine how much, when and what the price should be or even if they choose to buy it back or not, these US debt paper is all paper with value unknown until redemption??
     
  8. Koji

    Koji New Member

    Joined:
    May 24, 2009
    Messages:
    758
    Likes Received:
    1
    China is not the only one buying debt. Big players still include Japan, Taiwan, and SK.
     
  9. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,550
    Likes Received:
    6,554
    the hype is to keep Chinese buyers of the debt. This formula is very bad long term for the Chinese. When the defecit of most European nations exceeding 100% of their GDP's I don't see how much China can do to pull them out of recession other than keeping costs down by supplying goods cheap?
     
  10. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,550
    Likes Received:
    6,554
    true this could have dire consequences for all buyers, History has shown debt based systems have always ended in failure.
     
  11. Koji

    Koji New Member

    Joined:
    May 24, 2009
    Messages:
    758
    Likes Received:
    1
    Has worked wonders in the past for the US, Japan, SK, and Taiwan before!
     
  12. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,550
    Likes Received:
    6,554
    Being Japanese you should know how it has worked wonders for Japan the last 20 years.
     
  13. Koji

    Koji New Member

    Joined:
    May 24, 2009
    Messages:
    758
    Likes Received:
    1
    I ask you this then...what was the state of the Japanese economy post WWII? How rich were its citizens?

    Now, using a similar system that China is employing now, we Japanese are still considered to be one of the world's richest populations despite 20 years of recession!

    Of course, a more prudent approach would've been advisable, but the results cannot be argued with.
     
  14. badguy2000

    badguy2000 Respected Member Senior Member

    Joined:
    May 20, 2009
    Messages:
    4,957
    Likes Received:
    613
    after the round of investment(about in 5 years,that is in 2015 or so), China will have the global longest and most advanced high-speed railway net.

    that is , in 2015 or so, not only chinese expressways lenth wll supass USA's and become global NO.1,but also China's railway net will become global NO.1.
     
  15. advaita

    advaita Regular Member

    Joined:
    Jul 19, 2009
    Messages:
    150
    Likes Received:
    2
    Indians also have some holdings (significant from Indian POV) in US bonds.
    Chinese may be able to carry fwd the growth story, I hope they do, if these guys dont then even the Indians are going to feel the heat.

    Also Koji, Japan and China are not at all compareable (managerially, demographically, culturally, historical advantage wise).

    China is the victim here, having to do the whole worlds job here all by themselves with strong limitations holding them back.

    When Japs started it was an entirely different story.
     
  16. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,550
    Likes Received:
    6,554
    true you did acquire this level, but your economy is now capped with very limited growth and higher inflation. This capping can becoming even more severe when the economy takes another downturn, many export economies that revolve around US economy will all be facing a severe contraction as the financial crisis worsens in USA and the worst case scenario would be USA defaulting on the debt which could be possible with a downgrade of US debt

    Moody's US Debt Downgrade; Oh my, this could be HUGE

    Next Stop: US sovereign debt downgrade - Credit Writedowns

    Hyperinflation Begining in China and Will Destroy the U.S. Dollar :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

    China's U.S. Debt Quandary - Forbes.com
     
  17. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,550
    Likes Received:
    6,554
    Badguy do you seriously believe USA will give up the #1 spot????
     
  18. Daredevil

    Daredevil On Vacation! Administrator

    Joined:
    Apr 5, 2009
    Messages:
    11,613
    Likes Received:
    5,670
    Where does it say that China has single-handedly pulled out Europe out of recession. :wink:
     
  19. Koji

    Koji New Member

    Joined:
    May 24, 2009
    Messages:
    758
    Likes Received:
    1
    Are you kidding me? The stories are so similar that it's eerie. In fact, much of Asia's richest countries have already completed the path China is taking. Japan and Taiwan both were the world's factory for manufacturing needs in the past.
     
  20. advaita

    advaita Regular Member

    Joined:
    Jul 19, 2009
    Messages:
    150
    Likes Received:
    2
    I doubt that it is so simple (even though I wish it actually had been so simple). Those who raised debts in your country were the pioneers in the managerial field, then the new equilibrium set in and now the present crop that has to make good on the debt is just a bunch of clueless indolents who dont know how to exceed their ancestors.
     
  21. Daredevil

    Daredevil On Vacation! Administrator

    Joined:
    Apr 5, 2009
    Messages:
    11,613
    Likes Received:
    5,670
    China also has the largest dam in the world. So?. Did it overtake US by constructing three-gorges dam? or you believe that by constructing largest rail-network it will overtake US?. :blum3:
     

Share This Page