HOW WILL CHINA WEATHER THE FINANCIAL STORM?
Michael Schuman
Time, October 23, 2008
When the global financial storm began to gather a year ago, China appeared to be a nation that was well supplied with raincoats. The economy was growing at double-digit rates, Chinese banks had little overseas exposure to the credit crisis, and the country's $1.9 trillion in hard-currency reserves stood as a vast emergency fund that could be drawn upon in the event of trouble. Just two months ago, while giant Wall Street and European banks were crumbling, China was relishing its role as host of the Olympic Games as the world paid tribute to its years of remarkable, seemingly unstoppable, economic progress.
The raincoats, it turns out, have holes in them. With the chances for global recession increasing, it's becoming clear that not even the world's fastest-growing major economy can avoid a pronounced slowdown. Any remaining hopes to the contrary were dashed recently when China's National Bureau of Statistics released the country's latest economic data: in the third quarter, GDP growth had slipped to 9%, the slowest quarterly pace since 2003. Meanwhile, estimates for 2009 growth are being slashed to as low as 8%, which would be a dramatic deceleration from last year's 12% rate and would rank as China's worst results since 1999.
It's pretty clear why China is hitting the skids. The country's economic transformation over the past 25 years led a great wave of globalization during which the mainland's once small and isolated economy became much bigger and deeply integrated into global commerce — making it more exposed to the business cycles of its big trading partners such as the U.S. "The huge elephant in the China shop is the slowing global economy," says Merrill Lynch Asia economist T.J. Bond, citing an obvious reason: China's manufacturing sector, which accounts for 43% of China's GDP, depends heavily upon sales to the West. Some 40% of China's exports go to the U.S. and Europe, and with potentially deep recessions setting in there, economists are slashing the country's trade projections. Bond estimates China's export growth rate will fall to 10% in 2009 from 21% this year. For the revved-up mainland, that's a frightening plunge.
Michael Schuman
Time, October 23, 2008
When the global financial storm began to gather a year ago, China appeared to be a nation that was well supplied with raincoats. The economy was growing at double-digit rates, Chinese banks had little overseas exposure to the credit crisis, and the country's $1.9 trillion in hard-currency reserves stood as a vast emergency fund that could be drawn upon in the event of trouble. Just two months ago, while giant Wall Street and European banks were crumbling, China was relishing its role as host of the Olympic Games as the world paid tribute to its years of remarkable, seemingly unstoppable, economic progress.
The raincoats, it turns out, have holes in them. With the chances for global recession increasing, it's becoming clear that not even the world's fastest-growing major economy can avoid a pronounced slowdown. Any remaining hopes to the contrary were dashed recently when China's National Bureau of Statistics released the country's latest economic data: in the third quarter, GDP growth had slipped to 9%, the slowest quarterly pace since 2003. Meanwhile, estimates for 2009 growth are being slashed to as low as 8%, which would be a dramatic deceleration from last year's 12% rate and would rank as China's worst results since 1999.
It's pretty clear why China is hitting the skids. The country's economic transformation over the past 25 years led a great wave of globalization during which the mainland's once small and isolated economy became much bigger and deeply integrated into global commerce — making it more exposed to the business cycles of its big trading partners such as the U.S. "The huge elephant in the China shop is the slowing global economy," says Merrill Lynch Asia economist T.J. Bond, citing an obvious reason: China's manufacturing sector, which accounts for 43% of China's GDP, depends heavily upon sales to the West. Some 40% of China's exports go to the U.S. and Europe, and with potentially deep recessions setting in there, economists are slashing the country's trade projections. Bond estimates China's export growth rate will fall to 10% in 2009 from 21% this year. For the revved-up mainland, that's a frightening plunge.
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