Monday, February 4, 2008

If China were to slow dramatically, while growth in Europe and the US was still weak, recent low global interest rates, high commodity prices and strong global growth would be history

China may yet be economy to lose sleep over

Rather than deal with inflation through price caps, China should accelerate exchange-rate appreciation, thereby reining in money growth. . Global policymakers and investors who are losing sleep over US growth ought to pay more attention to rising risks coming from the other side of the globe. The writer is professor of economics at Harvard University and former chief economist at the IMF

Posted by chris @ 10:52 PM (426 views)
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2 thoughts on “If China were to slow dramatically, while growth in Europe and the US was still weak, recent low global interest rates, high commodity prices and strong global growth would be history

  • Landofconfusion says:

    I’ve been saying for a while now that should China with it’s overvalued market and cheap production capabilities fall, it could well trigger a crash in UK house prices. Why people seem so oblivious to our dependency on it’s inflation-busting output I don’t know.

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  • The Chinese have gone as nuts over property as anything that’s happened in Spain or the UK, with (I believe) similar consequences to come. A slowdown or even a crash would not be surprising especially after the disaster that will be the Beijing Olympics (watch this space ….)

    In my two most recent trips there I’ve seen every sign of a bubble economy as well as huge and growing regional tensions. Not to mention the massive consequences of the pig disease that’s boosted already rampant food inflation. China’s situation is, as the article says, much more fragile that the historical statistics appear.

    Looking longer-term what the world should be afraid of is China, once we’ve already outsourced the world’s manufacturing to it, falling to pieces or at least falling into turmoil for a long period. It fell into regional fiefdoms after the death of Sun Yat Sen not long after the revolution in 1911, and but for a brief period in the 20s and early 30s wasn’t really fully united again till Mao defeated Chang in 1949 (though Chang did a relatively good job in stabilisation and creating a modern economy in the 20s and 30s, till the Japanese arrived in 1937 and trashed everything).

    No large country – not France, not Germany, not the UK, not the US, not Russia, not even Japan – has modernised and industrialised so fast and so deeply without massive social tensions and inequalities leading either to deep social and political unrest (and even Civil War), or the emergence of an authoritarian regime who keep the lid on things internally through creation of external enemies and agression towards outsiders ….

    The world can’t rely on China to pull us out of this mess. And once they realise just how suckered they have been in their purchase of sub-prime-related and other dodgy financial instruments, expect a great deal more caution in the way they spread money around.

    Of course if they have their own crash, whether or not the country descends into internal mayhem, all bets for the world economy are off (Japanese commercial property values are still below 1989 levels – the Chinese megaboom could well end the same way).

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