Just around the corner?
It is very hard to believe in the decoupling hypothesis that asserts that China could do well during a US recession, based on the enormity of the numbers (even though things seem to be okay at the moment). The WSJ has some thoughts on the conundrum that China faces in keeping its growth up during a period of US contraction:
with a slowdown in growth and inflation likely, given the shakier outlook for exports, “is China massively underestimating the impact of a possible U.S. recession on mainland activity,” Société Générale analysts asked in a report issued Thursday. They said China could ease monetary policy, or even make it stimulatory, in the second half of the year to offset slowing export growth…
Commerce Minister Chen Deming said last week that China’s exporters “face new pressures because of rising energy and transport prices, tightening supply of funds, growing labor costs and adjustments in export policies.” Another problem for China’s tight monetary policy is that the country’s interest rates are rising above those in the U.S., encouraging speculators to funnel more money into China. This week’s Fed rate cut, which lowered the federal-funds target rate to 3.5%, took the U.S. rate below China’s benchmark one-year deposit rate, 4.14%, for the first time. The Fed is widely expected to cut rates again Wednesday…
Fixed-asset investment in China’s urban areas rose 26% last year, the statistics bureau said Thursday. The full-year rise was below market expectations of a 26.5% increase but up from 24.5% in 2006. China’s value-added industrial production in December expanded 17.4% from a year earlier, faster than market expectations of a 17.2% increase and above the 17.3% gain in November. Industrial production grew 18.5% last year, higher than the 16.6% rise in 2006.
Never has the world seen growth like China’s with the possible exception of the US during parts of the first three decades of the last century. It’s such a great ride unless it suddenly screeches to a halt.