China: Worse Than Anyone Imagined

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There have been some minority reports from pessimists like NYU economist Nouriel Roubini which say that China’s economy may be faltering as badly, if not worse, than America’s. No one believes that because it is too staggering to think that something so big growing at 10% a year could ever do anything worse than cool off a bit.

But, once something makes it to the front page of The New York Times, it is true everywhere and always.

The paper says that "Just as China attained supercharged growth that astounded much of the world, it appears to be slowing more sharply and more quickly than anyone anticipated."

That is too bad because economists had hoped that China’s great miracle was "decoupled" from the economy in the West. China’s export base and its new position as a major consumer of goods and services would keep the economy of the world’s most populated country on track.

Of course, the notion that national economies are decoupled from one another in a world which is essential operating under free trade was always hard to defend. But, it had the benefit of being hopeful and allowed people to sleep at night without worrying about a titanic global recession.

It is no longer easy to make the case that China is any better off economically than the US is. America is too big an importer of Chinese goods. China’s fall might lag the one in America, but never by more than a quarter or two.

China has a treasury plump with capital from years of trade surpluses. It will have that dry powder to help it through the trouble. But, that cash may not be leaving China as it used to. Its sovereign funds may no longer be big shoppers. Worse, it may lose some of its appetite for US Treasury debt, which would make keeping a high deficit in America more expensive than it has been in decades.

Douglas A. McIntyre