China Looks To US To Keep Its Economy Hot

Perhaps Americans thought they would never hear it, but the Chinese have admitted that US consumption is one of the critical engines of the Asian country’s 10% annual GDP growth rate. And, a possible slowdown of the economy here could bite into China’s expansion.

According to the FT "China’s commerce ministry warned on Thursday that a slowing US economy would trigger a drop in Chinese exports that would mark a “turning point” for China’s rapid economic growth."

It was ever thus. The Chinese now face the same challenges that the Japanese did in the 1980s. America is unavoidably the uber-consumer. It the appetite fails, the slowdown spreads.

Huang Yiping, chief Asia economist for Citigroup, said: “I agree with the government that a marked slowdown in the US would be very bad for China. We haven’t seen overcapacity or a so-called hard landing in China because it has been able to export all its excess capacity until now.”

Should the slowdown spread to the EU, and it will, China will be faced with twice the trouble.

The circle that is created is worrisome. Large US companies now rely on their China operations for some of their fastest revenue growth.  A slow US economy hitting China would undermine much of the international revenue of firms like Wal-Mart (WMT), GE (GE), and GM (GM).

A mess all around.

Douglas A. McIntyre