Deep Currents

Providing massive economic growth has been the core strength of the Chinese Communist Party since Deng Xiaoping. But today the Chinese economy is faltering, and the World Bank just released a report detailing the many uncertainties that it faces as the world heads into what could be an extended downturn:

With global growth prospects for 2009 weaker than they have been in a long time, China’s economy is braced for a significant further slowdown, says the World Bank’s latest edition of the China Quarterly Update. Fortunately, China’s domestic economy has several sources of strength, including still robust growth in several parts and strong macroeconomic fundamentals that provide room for policy stimulus to dampen the downturn. What does this all mean, for China and the rest of the World?

Brad Setser at the Council on Foreign Relations sums up the following top 7 take-aways:

1. China was no workers’ paradise during the boom years.
2. China really is a manufacturing and investment driven economy.
3. China’s current slowdown was made in China, not in the world.
4. There is more bad news ahead.
5. The fiscal stimulus is real, but modest. 
6. The last thing anyone needs to worry about is fall in Chinese demand for US treasuries.
7. The way China manages its reserves matters immensely for the world not just China

Written: November 28th, 2008