Dr Jim has merely stated the obvious -- that China is effectively headed into recession. What I don't understand any more than he does is why so few "economists" fail to see the reality. China makes more than it can consume, so it exports its surplus. America consumes far more than it produces, so it imports a deficit. So, when America goes into recession and stops consuming, how the heck can China go on producing? It HAS to go into recession. The only alternative is to keep producing and build up mountains of unwanted inventory. This isn't a $1 lottery ticket or a "best guess". It's very, very simply logic.
SPONSORED BY:
- 1
- 2
He Called The Bust
Email To A Friend
Please fill in the following information and we'll email this link.
SPONSORED BY
I shouldn't say China will have negative growth, but 9.3 is ridiculous. Last week we told clients that [we expect] 4 to 5 percent growth in China next year, but that there was a 30 percent probability that growth will be negative. We have benchmarked growth forecasts for Asia next year [based on] the 2000-01 recession, which was pretty mild. We're [expecting] no more than 2 percent growth for the region.
The consensus view is that the global economy desperately needs rebalancing whereby Asia consumes more and the United States saves more. Do you agree?
Americans are not going to spend above their means anymore, which automatically means that they're going to save more, which means that demand for what Asia produces is going to decrease. Whether that then gives a scope for Asians to spend more is really a big question. The premise is right; if they don't, the global economy goes into a much deeper downturn. But it's very difficult to tell any bunch of people what to do.
What makes Asian households so reluctant to consume?
Two things happened: the Asian crisis engendered a much higher degree of conservatism and a thrift mentality, and the dismantling of the social-security safety net in China did exactly the same thing there. We ended up with a much thriftier region, and we're going into this crisis with people in a nonspending mode.
How should Asian governments respond?
It's tough to reverse something you've encouraged for a long time. And many countries in this region have encouraged exports and kept their exchange rates too low. [I worry that] they're going to make [the global imbalance] even worse by depreciating their currencies further. We've had 20 to 30 percent depreciation in most Asian currencies over the last year. A true effort toward a different growth model would be to have no depreciation or even some appreciation [against the U.S. dollar]. But that's just not in the cards at the moment. [Asian policymakers] can't see their own domestic economy and its actors as the answer to their problem. But in natural fact they are.
© 2008
- 1
- 2
Discuss