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CHINA CAN'T DO IT ALONE

Bernardo M. Villegas

Manila Bulletin, March 21, 2010

Despite the increasing worries about a possible asset bubble bursting in China, the immediate prospects in this largest Asian economy continue to be bright. The domestic market is increasingly replacing exports as the engine of growth. Any danger of an asset bubble may still be five to ten years down the road.

It is possible that before 2010 is over, the U.S. and China will be the two largest economies in the world. In 2008, the U.S. had GDP of $14.4 trillion, Japan had $4.9 trillion while China posted $4.3 trillion. With the U.S. and Japan succumbing to the Great Recession of the last two years while China hardly experienced a blip, it is a certainty that China will surpass Japan in GDP in the course of this year. With the U.S. facing the possibility of a double-dip recession in the next year or so and Japan probably seeing a repetition of its lost decade in the 1990s, China will clearly outshine the G-2 of the last century. Given the widespread expectation that U.S. demand will stay subdued for a while, especially as regards consumer spending, the U.S. can hardly be expected to be part of the dynamic duo. A more likely partner of China in stimulating the world economy is its giant neighbor, India. In an IMF report that appeared last February 4, 2010, India's economy was cited as one of the first in the world to recover after the global crisis. To quote from the IMF report, "Prompt fiscal and monetary easing, combined with the fiscal stimulus already in the pipeline and the return of risk appetite in financial markets, have brought growth close to pre-crisis levels. Leading indicators suggest the output gap will continue to close. Capital inflows are back on the rise, and financial markets have regained most of the lost ground."

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