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Zero growth in China may be 2009's black swan event
Their rationale is that the export-driven industries of China's economy will be hurt by the freefall in U.S. growth. Many commodity-related investments in recent years will sour with global demand. And since China has been running an overly expansionary monetary policy for many years, the gamut of speculative bubbles will be revealed.
Clearly, zero growth isn't the most likely outcome. Walker, for example, expects 0 percent to 4 percent this year, with a 30 percent probability of a contraction.
For a developing and highly populated nation like China, 5 percent growth is as good as zero. For Japan, such output would be a dream; for China it would be a nightmare.
A year ago, officials in Beijing struggled to keep their US$3.3 trillion economy from overheating. That task will prove easy compared with juggling plunging exports, shuttered factories, tumbling property prices, surging unemployment, dwindling demand and growing worker unrest.
The ruling Communist Party faces its toughest challenge since 1989, the year of the Tiananmen Square protests.
Economists have long agreed that China needs growth in the vicinity of 10 percent to placate the masses.
The social contract is this: We will make you richer, you won't question the government. If growth slows to 5 percent, never mind zero, Chinese officials will be in a very bad way.
China's US$1.9 trillion of currency reserves are a plus. So is the government's success in letting the yuan rise a bit, but not enough to devastate exporters. And as we saw from recent stimulus efforts, China is willing to do what it takes. That may not be enough, though.
Plunging home prices around the world are just part of it. This month, Americans, Europeans and Japanese will be reviewing their 2008 investment and retirement-fund statements. When it dawns on average households in Cleveland, Manchester or Nagoya that they lost 40 percent or more of their net worth, they might put off that holiday. They might scrap plans to buy that new car, flat-screen television, stereo unit, mobile phone, iPod, business suit, sofa or toy.
China will be on the losing end of many of these decisions. The era of excess discretionary spending that served Asia so well these past 10 years is over.
That leaves China with two options: boost public spending and encourage consumers to save less.
The trouble is, China must turn its economic model upside down, relying on growth from within rather than from abroad. Spooked by a 66 percent decline in China's benchmark stock index last year and growing economic gloom, consumers are more likely to increase saving than spending.
The stability of a top-down, command economy now rests on the shoulders of the masses far below.
In 2009, China may learn the limits of conjuring growth from on high.
http://www.chinapost.com.tw/commentary/bloomberg/2009/01/08/191091/p2/Zero-growth.htm
Their rationale is that the export-driven industries of China's economy will be hurt by the freefall in U.S. growth. Many commodity-related investments in recent years will sour with global demand. And since China has been running an overly expansionary monetary policy for many years, the gamut of speculative bubbles will be revealed.
Clearly, zero growth isn't the most likely outcome. Walker, for example, expects 0 percent to 4 percent this year, with a 30 percent probability of a contraction.
For a developing and highly populated nation like China, 5 percent growth is as good as zero. For Japan, such output would be a dream; for China it would be a nightmare.
A year ago, officials in Beijing struggled to keep their US$3.3 trillion economy from overheating. That task will prove easy compared with juggling plunging exports, shuttered factories, tumbling property prices, surging unemployment, dwindling demand and growing worker unrest.
The ruling Communist Party faces its toughest challenge since 1989, the year of the Tiananmen Square protests.
Economists have long agreed that China needs growth in the vicinity of 10 percent to placate the masses.
The social contract is this: We will make you richer, you won't question the government. If growth slows to 5 percent, never mind zero, Chinese officials will be in a very bad way.
China's US$1.9 trillion of currency reserves are a plus. So is the government's success in letting the yuan rise a bit, but not enough to devastate exporters. And as we saw from recent stimulus efforts, China is willing to do what it takes. That may not be enough, though.
Plunging home prices around the world are just part of it. This month, Americans, Europeans and Japanese will be reviewing their 2008 investment and retirement-fund statements. When it dawns on average households in Cleveland, Manchester or Nagoya that they lost 40 percent or more of their net worth, they might put off that holiday. They might scrap plans to buy that new car, flat-screen television, stereo unit, mobile phone, iPod, business suit, sofa or toy.
China will be on the losing end of many of these decisions. The era of excess discretionary spending that served Asia so well these past 10 years is over.
That leaves China with two options: boost public spending and encourage consumers to save less.
The trouble is, China must turn its economic model upside down, relying on growth from within rather than from abroad. Spooked by a 66 percent decline in China's benchmark stock index last year and growing economic gloom, consumers are more likely to increase saving than spending.
The stability of a top-down, command economy now rests on the shoulders of the masses far below.
In 2009, China may learn the limits of conjuring growth from on high.
http://www.chinapost.com.tw/commentary/bloomberg/2009/01/08/191091/p2/Zero-growth.htm
