World Sneezes, China's Just Fine

So questions of semantics aside, what's really going on? The answer is that while China is widely viewed as an export powerhouse, selling everything from garden gnomes to laptop computers overseas, most of its economic growth is still fueled by domestic investment and consumption, neither of which has shown much sign of slowdown so far. Anderson reckons that China's gross domestic product growth will slow to 10% this year, down from 11.4% in 2007, hardly the kind of slump to cause serious concern for Beijing.

A More Open Economy Still, the Chinese economy is far more open than it was during the last U.S. recession of 2001. Back then, exports accounted for just 8.4% of gross domestic product and today it's about 40%. The European Union is China's biggest export market, with 20%, just ahead of the U.S. with 19%, while Japan and the rest of Asia take 25%, says Michael Spencer, Asia chief economist at Deutsche Bank. He's estimating growth will slow to 9.5% this year, but only half of that decline will be due to a slower increase in the growth of China's trade surplus.

The European Union is China's biggest export market, with 20%, just ahead of the U.S. with 19%, while Japan and the rest of Asia take 25%, says Michael Spencer

Help me out here -- those numbers tell the story for 64% of China's export market. Where's the other 36%? South America? Africa?

Businessweek always has something interesting to write about when the topic is China.

It really does show, that China doesn't take away from the West. If they did, China's growth would be severely affected by a slowdown in the West.

BW commenter: I have seen many stories of how India and China will just do just fine without the US. Well, if that is so, then what are they going to do with all those goods they now ship to us? They don't buy them, and the rest of the world isn't going to.

This guy gets at the nub of it, but doesn't in fact understand how things work. Using a macro level description is analogous to not seeing the trees for the forest. Plants in China don't make goods irrespective of demand. American retailers buy goods from factories (foreign and Chinese) in China and pay for them with dollars. If demand at the retail level is low, retailers won't place as many orders. Some factories will close and others will lay off workers. Since the more expensive things made by factories in China tend to be exported, the higher value-added segment of the Chinese market will be affected. China has plenty of unproductive investment in the stock market and real estate, in which huge bubbles are starting to pop. China is about to get the worst of both worlds - both domestic and international slowdowns happening simultaneously. It is about to encounter yuandaka (a Chinese version of Japan's endaka), way before China has had the chance to get rich.

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