WILL CHINA SAVE US?

THE MYTH OF "DECOUPLING" AND THE CHINESE CONSUMER

The "China decoupling" story holds that as China's households grow wealthier then China will no longer need export markets in the E.U. and the U.S. The story is appealing but the facts don't support it.

Charles Hugh Smith

Benzinga, September 14, 2010

For years, many have argued vociferously that China's economy will "decouple" from that of the U.S. and the E.U. The theory--more like a quasi-religion in some analysts' minds--is that as China's consumers grow wealthier they will absorb all its vast production, and as a result China will no longer be dependent on exports.

There's just one problem with this theory: it rests entirely on a superficial understanding of the Chinese economy and the limited role of households in its Central-State planned economy.

Many who hold that China will not only decouple from the U.S., but that its hundreds of millions of newly minted middle-class consumers will actually pull the U.S. out of its deflationary slump with their insatiable demand for consumption. Here is a typical mainstream listing of China's growth as a reason the U.S. won't slip into recession [1] again.

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