Friday 14 November 2008


LONG WAY FOR CHINA, INDIA TO SHIELD WORLD FROM DOWNTURN
The Economic Times, November 14, 2008

MUMBAI: Despite China and India adopting different growth paths, the two economies are suffering from the global turmoil in similar ways. External demand is evaporating, weighing on the performance of the Asian giants' exports. Foreign direct investment is also losing steam amid a global credit squeeze and rising risk aversion.

Optimists had expected the two giant Asian economies to help prevent a global recession. However, because of globalisation, economies around the world have become increasingly intertwined. The two powerhouses are not immune as slowing exports and investment weigh on their growth momentum.

"Although China and India account for 40 per cent of the world's population, their 2007 GDPs add up to less than 10% of global output in nominal value, or around 15% on a purchasing power parity basis. Moreover, their economic health is still highly dependent on the global environment. Thus, they are a long way from being able to play the leader or saviour role in shielding the rest of the world from a substantial downturn. That said, China and India's relatively strong demand for imports - for infrastructure development - has already cushioned the adverse impact of the global crisis by providing much-needed support to trade-dependent economies, especially those specialising in resources and technology," said Sherman Chan, economist with Moody's Economy.com.

China, in particular, has been helped through its cash-rich financial institutions and its $200 billion sovereign wealth fund, established in 2007 thanks to the country's massive foreign reserves, which stood at $1.9 trillion at the end of September. In its most notable rescue role so far, China Investment Corp. had bought a 9.9% stake in Morgan Stanley in December, in the early stages of the financial storm. However, with the fund's first investment in a Western financial firm - in private equity firm Blackstone Group - suffering a huge paper loss, the authorities have become more cautious in assessing such opportunities. Furthermore, the plunge of domestic stock markets this year has prompted the government to direct the sovereign wealth fund to shore up the Shanghai exchange, at the expense of bailing out other troubled firms in the West.

(...) [artículo aquí]

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