Is China Decoupling? Is it Uncoupled? Or Am I Coming Unhindged?

Sunday, February 10, 2008 11:09
Posted in category Uncategorized

Last October, Jon Anderson at UBS put out a paper that looked at the contribution of exports to the Chinese economy, and what he found – what he proposed – was something “new” to the market. that China’s economy was more dependent on its domestic economy rather than its export economy.

This was something that I wrote on in the two posts Is China Export-Led? and Is China Export-Led?: Part 2. At this time, it was something new, and a bit controversial.. and so I put these posts together for a couple of reasons (1) to put this “new” theory out there and (2) to see what readers thought.

Perhaps the most interesting thing that happened though was that by putting the posts up, the economist and RGE monitor both picked it up and went through Anderson’s analysis at a much higher level than I did… or could have.

What is interesting is that there seems to still be a lot of disagreement as to whether or not the economy has from a technical standpoint disengaged from the global economies. It is clear from every measure China is headed that way, however questions still remain about what would be the impact of a deep U.S. recession on China… would it slow down? would it coming to a screeching halt? Or would it go largely unnoticed.

It is something this CNN report explores a bit, but again, even in watching this clip I am still not satisfied..

[youtube width=”425″ height=”335″]http://youtube.com/watch?v=JufzjodoAM4[/youtube]

Personally, and I hope this does create some discussion from people with stronger economic skils than my own, I do not think that China has “decoupled”. In fact, I believe that China is now more vulnerable than ever before.. and here is why.

Take a look at the effect the recent snow storm has had on the transportation and untility systems in China. Looks at the impact a single bovine disease can have on inflation.. Look at the impact of China’s recent drought.. and what you see is that while China has come so far, it is still riding a fine line.

A lot of commentators, analysts, and reporters will immediately point towards the “middle class” and the spending that is going on here, and I can understand that. Where I am hesitant to jump on the bandwagon though is not that there isn’t a large amount of spending going on… it is that I am not sure it can be sustained very long. Something I believe is critical before China can say it has decoupled.

For me, it is no longer a matter of if, but a matter of when for China to become a balanced economy and one that can stand on its own 2.6 billion feet. However, to get there, China still needs every bit of energy, every order, every dollar, etc to get there. There are so many things occurring at once, and if China were to lose one of the things it has come to count on for the last 10 years (U.S. export growth), I believe that it will have a domino effect… especially if the U.S. economy really tanked.

So, with that I will open the floor.

What I am working from is 6 years of watching China grow, and seeing that while a lot of progress has been made, there is still a lot to go.

But what do you think? Would China be able to outrun a U.S. recession, and if so, for how long?

Are the events this week a sign that the economy is more vulnerable than once though, or is that over reading the situation?

You can leave a response, or trackback from your own site.
Tags:

Leave a Reply