| US economic recession benefits China? | |
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| Jan 10, 2008 02:44 |   |
 | Stephen S. Roach, the a senior executive with Morgan Stanley said in Shanghai that US economy might have entered its recession and it will influence Chinse economy growth and exports. But the influence is not negative. On contrary, US economic recession can benefit China to some degree and it is estimated that Chinese economy growth rate in 2008 might slow down a bit, 8% to 9 %. At present, China is trying to cool down its over-heating economy. Althought many measures have been put into use, the result is not satisfying. If US economy goes into recession, it will help slown Chinese economy growth. This is what Chinese government expects. Do you think US ecnomy will enter its recession? If so, does it really benefit China? What are your views on this issue? |
| Jan 10, 2008 03:38 | #1 |
| GUEST39148 | In general terms, an economic recession is defined as two consecutive quarters of declining growth, or no growth in real terms. A recession is almost always accompanied by a dramatic decline in consumer spending and a rise in unemployment. Has the U.S. reached this point? Opinions vary, as some say yes, while others are not quite saying no, but that the indicators are certainly there. The U.S. housing market is in a terrible slump, that is for sure, and the housing market is a key indicator. It has been said that when the U.S. economy catches a cold, other economies catch pneumonia. This may have been true in the past, but with a much larger world wide or global economy, few if any countries are so dependent upon the U.S. that a recession there will trigger a likewise recession in theirs. Will an American recession benefit China? Yes, possibly. By this I mean that if the goal of the economic planners here in China is to slowdown the rate of growth, a recession in a major trading partner will serve to make attaining this goal a bit easier. Is this a good thing? Not necessarily, since a great deal of the "money" that has been made here of late is speculative money, and not the result of increased production. Or, put another way, fortunes have been made here in the past few years, but these fortunes are fuelled by a cash transfer within the stock market, with no real increase in real economic production. An American recession will 1) make waging a war all the more costly; 2) make their ability to meet their debt obligations much more difficult to meet; 3) lead to another round of a devaluation of the U.S. dollar. This is altogether very bad news for the average, middle class American taxpayer. |
| Jan 10, 2008 03:58 | #2 |
| GUEST121 | US is China's biggest trade parter.US falls, can China benifit? |
| Jan 11, 2008 00:48 | #3 |
| We should consider cyclical and structural changes. I think we are seeing boith at the moment. There is a cyclical decline triggered by the subprime mortgage issue and it will take a while to sort out. That is having some immediate impact on other countries and trade but it is not serious for the world as the Chinese economy with some other emerging nations that are driving world growth, are still very strong. The limited impact might help slow the Chinese economy in line with (the very appropriate) governemnt policy. However, US investors may be encouraged to look away from the US and invest elsewhere. If that investment is in China it is likely to cancel the slowing effect we have been talking about. The structural collapse of the US is more serious. The US has major economic and social issues, much of it fuelled by massive government borrowing (despite having a series of governments advocating minimalist government activity and low taxation as a cornerstones of their policies). Why the borrowing...to finance international wars and to porkbarrel (subsidise) industrial and geographical sectors which various politicians need in order to become re-elected). This corruption is so entrenched that many people no longer notice it, but until it is fixed the US will continue to decline economically. This will allow other nations to take up the slack, and China is there ready to do just that. In terms of international power, the US is delivering world leadership into China's lap. This was entirely predictable, it is straight out of year one macro-economics: subsidies and vote buying rebates reduce efficiency as well as being a form of corruption. |
| Jan 11, 2008 03:14 | #4 |
| It is said that US is possible to cut the interest rates again. US has cut the interest rates several times and it seems that this move was useless. Why do they try it again and again? On contrary, China has raised the interest rates many times in 2007 to cool its economy and prevent inflation and it also didn't work well. The prices of food is still soaring. So is the CPI. If US economic recession can really benefit, that would be very good. However, it can also make China suffer. If US economy go into recession, the dollar will surely depreciate more drastically. Influenced by this, China's Yuan will face severe pressure of appreciating. For this reason, it is no good. Talking about the subsidies, many other nations are dissatisfied with China because it offers much subsidies to its enterprises. EU has adpoted some measures to deal with this issue. What can China do to ease EU's anger? |
| Jan 13, 2008 00:17 | #5 |
| You answered your own question on why does the US keep cutting interest rates by saying that China has been raising interst rates because it is trying to cool the economy. Simply the US economy is struggling and will continue to struggle for some time. The sub prime issue was a symptom of its ills. The US dollar has been overvalued for a long time simply because everyone has assumed that the mighty US economy could service its debt to other nations, but now the rst of the world is having second thoughts. The lower US interest rates will also increase the pullout by foreign owners of dollars. It is not good for anyone if this happens too suddenly, just as the chinese is arguing it shouldn'r revalue the RMB too quickly. Market theory shows it will all balance out. If industries collapse, and they will people and capital must be deployed elsewhere, but we don't want that happening to say 20% of the economyy and populataion in one year. It takes time for investment to be reallocated and new jobs to be created. If the reallignment is too fast it will affect the whole world, sure. China may benefit from lowered input costs (there will be less competition for raw materials) but it will be hurt more by a sudden dramatic recession in the US. Subsidies are very hard to measure. Many countries provide indirect subsidies by offering below cost electricity, for example. Taxation and labour laws also impact on the competitiveness of business. A university study reported recently that in the early 1990's when there was a food shortage, farmers were actually taxed rather than subsidised (a political strategy to ensure no civil unrest in the cities perhaps). Overall, I would doubt that China provides subsidies anywhere near the levels of the USA or the EU, but I haven't seen any analysis. |
| Jan 15, 2008 03:14 | #6 |
| Quote: It is not good for anyone if this happens too suddenly, just as the chinese is arguing it shouldn'r revalue the RMB too quickly. Market theory shows it will all balance out. Well, Paul. RMB is appreciating quickly and the exchange rate between dollar and RMB is 1 : 7.25 though China doesn't want to see RMB appreciating so fast. |
| Jan 15, 2008 09:18 | #7 |
| I wouldn't call that fast...it is being slowed down by government policy. As the RMB is no longer tied to the US $ as it used to be, the revaluation of the RMB is indirect and in response to the falling US $. The RMB cannot appreciate against the basket more than the government allows. Well done the Chinese experts for changing to the basket and assuring a steady revaluation. |
| Jan 16, 2008 03:24 | #8 |
| Well, it was not as fast as we expected. Without pressure from other foreign nations, I guess that it wouldn't appreciate so 'fast'. We can understand it. The government are afraid of the side-effects of rapid appreciation of RMB. Anyway, RMB is appreciating. Just hope other nations have less complaints about China. Of course, China should make its own contribution to world economy stability, but not burden all the responsibilities. |
| Nov 8, 2008 03:30 | #9 |
| GUEST71227 | maybe it's true |
| Nov 8, 2008 03:31 | #10 |
| GUEST71227 | Well, it was not as fast as we expected. Without pressure from other foreign nations, I guess that it wouldn't appreciate so 'fast'. We can understand it. The government are afraid of the side-effects of rapid appreciation of RMB. Anyway, RMB is appreciating. Just hope other nations have less complaints about China. Of course, China should make its own contribution to world economy stability, but not burden all the responsibilities. |
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