China in face of the West's 'Great Stagnation'
- By John Ross
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China.org.cn, November 4, 2011
Almost uninterrupted growth in the developed economies during the period of China's economic reform undoubtedly created overestimation within China as to their stability - Chinese analysis might have been very different if its reform period had overlapped significantly with the international economic crisis of 1973 and 1979. Recently, for example, it was astonishing to read articles in the Chinese press of a single report by the Boston Consulting Group, predicting US industrial revival, as though this had actually already happened when currently US industrial production is still 6.6 percent below its pre-crisis peak.
In economics and business there is no virtue in either optimism or pessimism, there is only a virtue in realism. Given current trends, China has to base itself on a perspective that for several years there will be slow growth of the developed economies and therefore slow growth of their imports. Developing economies, while growing more rapidly than developed ones, will not in the very short term be able to fully compensate China's exports for stagnation in developed economies.
The international framework for China's economy is therefore clear. It is important to understand that what is faced is a 'Great Stagnation' not a new 'Great Recession' - that is there is no reason to anticipate major international economic downturn of the 2008 type. China therefore does not need a new huge stimulus program of the type it launched in 2008 - which would lead to severe economic overheating. But the international economic situation requires adjustments in emphasis.
First, even more than previously, China has to rely on developing domestic demand. Greater analytical clarity on this is important as at present domestic demand is frequently confused with domestic consumption - the two are not the same.
Second, while developing economies will not immediately be able to fully make up for the negative pressure on China's exports from the 'Great Stagnation', they provide an important addition to China's domestic demand - in the last fifteen years the percentage of China's exports going to developing economies have risen from 35 percent to 50 percent. All developing economies face the Great Stagnation, therefore all face constriction on exports to developed countries, while China's imports are continuing to expand. This will produce greater integration of developing economies with China in both exports and imports.
Within developing economies many of China's top companies, such as Huawei, Haier, and Lenovo already have high brand values and the present situation therefore creates opportunities to further enhance the positions of China's international brands.
Finally political discontent in the developed countries is growing due to the Great Stagnation - political turmoil in Greece and the rise of the 'Occupy Wall Street' movement, in different ways, symbolize this. Many countries realize that win-win economic cooperation with China is the best way to confront the Great Stagnation, but some unscrupulous politicians are attempting to divert attention from the real problems confronting their economies by 'China bashing'. China's policy makers therefore are doubtless following both the political and economic aspects flowing from the Great Stagnation.
The author is a columnist with China.org.cn. For more information please visit: http://www.china.org.cn/opinion/johnross.htm
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
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