The View From China: World Economy Will Get Worse

Chinese leaders reckon that their economy is getting better, but the world’s is getting worse and will do so for some time.

Their optimism about their own country is based on the  supposed intelligent actions of the central government in the face of a recession and its quick action of putting more than $500 billion in stimulus into the financial system.

The rest of the large nations around the world will not be so fortunate. According to Reuters, “The global financial crisis is still spreading and the world economy is going to get worse before getting better, China’s Vice Premier Wang Qishan said.”

It is hard to see how that assessment could be correct. Even if the investment that China is making in its economy helps to temporarily boost factory production and consumer spending, China’s massive export machine must do well for the country’s GDP to maintain rapid growth.

If Wang Qishan is right a recovery in Japan and the West is far off. That almost certainly means that these markets will be much smaller importers. Given China’s central position as the largest trading partner of a number of other large nations, it cannot sustain improvements in its own economy without a sustained recovery around the world.

If China is right and the rest of the world is still falling apart, it is only a matter of time before that collapse overwhelms the benefits of China’s huge investment in its own economy.

Douglas A. McIntyre