Thursday, July 16, 2009

China Will Lead Global Economy Out of Recession

BEIJING (WALL STREET JOURNAL) -- China's government has turned around its economy far faster than most thought possible, as officials said Thursday that growth accelerated to 7.9% in the second quarter. Even if the surge moderates in coming quarters, many analysts say China will very nearly meet its target of an 8% expansion for all of 2009. In the first quarter, gross domestic product grew 6.1% from a year earlier.

The Shanghai stock market's benchmark index has gained 75% this year (see chart above) as the Chinese outlook has improved, with factory output, bank lending and commodity imports all continuing to accelerate in the past few months. Now, authorities face increasing questions about how long this growth can last, and how quickly the world's third-largest economy can be weaned off its massive stimulus before longer-term problems take root.

"China will be among the first countries to lead the global economy out of this recession," said Hans Timmer, director of the World Bank's economic forecasting department. Developing countries such as China are becoming a bigger driver of global growth as U.S. households cut back consumption and boost savings, he said.

China's government only reports year-on-year growth estimates. But when measured in the same terms as other major economies—an annualized quarter-on-quarter comparison—China's growth in the second quarter could be on the order of 15%, some private economists estimate.


At 7/16/2009 5:30 AM, Blogger  said...

Dr Mark,

I enjoy reading your blog. Question on China... isn't the vast maority of China's well being parlayed with exports? After the stimulus wears off, where does the real growth come from? Can governments truly stimulate their way out of recessionary trends? Last, is there such thing as a jobless recovery?


At 7/16/2009 5:49 AM, Blogger juandos said...

'"China will be among the first countries to lead the global economy out of this recession," said Hans Timmer, director of the World Bank's economic forecasting department'...

Ramirez seems to think that China will do the turn around without the US...

At 7/16/2009 6:22 AM, Anonymous Anonymous said...

For reasons of political stability, a certain growth rate must be maintained. Just how credible are China's numbers?

At 7/16/2009 9:15 AM, Blogger misterjosh said...

Isn't a rebound easier when you have huge barriers to import? China is one of the most trade unfriendly nations, and is one of the most trade dependent.

Long-term they're shooting themselves in the foot, but we are the benificiaries, so it's all good.

At 7/16/2009 11:26 AM, Anonymous gettingrational said...

As misterjosh has stated the barriers to imports are well established. They are well established, ever evolving and quite creative. The U.S. does not have an answer for this except for trying to defeat the barriers for portk producers for instance. Is this where we choose to pick our battles? This is really stupid and the Chinese government must really love our latest inept trade representative.

We are not the beneficiaries of mercantilist trade practices. If China is to lead out of recession they will surely buy U.S. goods and services. Surely they will not look at mountains of U.S. dollars as purely investible funds for interest payments.

When history is written for this Great Recession the trade practices of China will be the modern equivilent of Smoot-Hawley levied against the U.S.

At 7/16/2009 2:58 PM, Blogger Mark Dodson, CFA said...

This comment has been removed by the author.

At 7/16/2009 3:08 PM, Blogger Mark Dodson, CFA said...

I think that this should instead read, "Chinese Government" Will Lead Global Economy Out of Recession. The original piece Mark linked to has since been changed/edited, and I cannot locate the original on WSJ, but here is an excerpt.

"[The Chinese government] has engineered one of the most dramatic monetary expansions in history. Banks have issued twice as much in new loans so far this year as in the first half of 2008, and China's money supply is now expanding at nearly triple the rate in the U.S. Along with China's stimulus plan of four trillion yuan ($585 billion), the credit boost has helped to restore confidence…"

I would guess that a lot of this stimulus is being spent on infrastructure, in some of the most over-extended areas in the Chinese economy already.

There is less truth to the idea of decoupling than what most believe. China still relies on exports to a significant degree

At 7/24/2009 2:42 AM, Anonymous Global Recession said...

According to me we should take recession as good event, I know that all will disagree with me but I have some explanation on this, we all know that saving money, spending limited money are very much essential points for our financial security but still we don't follow it. Recession is the way by which we all can learn how to save and spend without any tutor for that.


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