Can China Save the World’s Economy? Not in 2009

Sunday, January 4, 2009 8:40
Posted in category Uncategorized

There is already a ton of speculation about the role China should play in “saving” the world’s economy, which for me seems a bit over the top.  however, the two and a half minute clip on CNN had loaded up on experts and anecdotal shoppers to put forth their view.

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For me, it is pretty simple.
(1) China’s consumption economy is very small in comparison to its overall economy, and it is less than the size of California in gross
(2) a significant number of people I speak with (in my age group) have already cut back on spending and are talking more about hiring freezes than about trips to Thailand
(3) I have had discussions with 3 brands in the last 10 days (2 mid tier global + 1 luxury) who are already seeing fall off – worst was 50% drop- and expecting more

Keep in mind that the same events – plummeting home values and stock values – were occurring here 9 months before they occurred in the US, and that while some would say that the average consumer was not in the market, I know of one study that was a measure of the middle class market that showed nearly 70% having stocks.

Where I think things, short term, are strong for China’s market is simply the fact that its government has taken a page from GW’s 2001 economic team and is focused on driving consumerism through subsidies, incentives, loosen credit, and otherwise make it easier for consumers to spend their money in an effort to provide some measure of catalyst.

Then the remaining question for me is: even if China does consume like their American peers of old… would that really be enough? Or would it prove to simply be another one of those stories that simply didn’t pan out like the policy makers hoped it would?

For me, I just don’t see it, and my suggestion is that rather than believe the rosy pictures of China saving the world’s economy we begin to really work on the core issues.  Something Tom Friedman’s recent article highlights well:

With unemployment now soaring across the U.S., said Stephen Roach, the chairman of Morgan Stanley Asia, Americans — “the most over-extended consumer in world history” — can no longer buy so many Chinese exports. We need to save more, invest more, consume less and throw out most of our credit cards to bail ourselves out of this crisis.

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2 Responses to “Can China Save the World’s Economy? Not in 2009”

  1. Aimee Barnes says:

    January 4th, 2009 at 10:00 am

    You’re right on the mark here. China has yet to adopt the habits of the American consumer and if they did, increasing problems in terms of environmental pollution, corruption and counterfeiting would certainly occur. The backbone of China’s financial culture has historically been one of saving and there is no recognizable need among the majority to have an outfit for every day of the week, a million gadgets that are used once and tossed aside, etc. They are lucky that most people do not hold credit cards there (about 1 in 20 last I checked)- imagine what a credit crisis that could be! Thankfully, individuals within the country still seem to possess some level of fiscal responsibility…I think China will be o.k., but they’re definitely not going to be the life raft for the rest of the world.

  2. Alwin says:

    January 7th, 2009 at 1:12 am

    For China I think it’s more about saving the domestic economy rather than the world one. Measures to stimulate domestic consumption will of course have flow-on effect for imports (e.g. looser monetary policy), however a lot of the direct stimulus package is domestic sectors like roads, airports, railway infrastructure, housing, etc. Agree with Friedman too, although some would argue consuming less isn’t exactly what we need either