China's Slowdown, a Breather for the World

By The Greek - Economy & Markets

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Reports from the World Bank, the Organization for Economic Co-operation and Development (OECD) and the European Bank for Reconstruction and Development (EBRD) all effectively downgraded the world economic outlook today. Each of these individual reports offered cuts in regional economic forecasts, and raised related issues of concern. However, according to the World Bank and Wall Street Greek, China's economic breather offers the world a chance to catch its breath.

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My How Things Have Changed

The World Bank issued its quarterly update on China today, indicating that the nation's domestic economy and its economic stimulus plan would be critical to the world outlook. Not long ago, China's outlook would have hinged on the needs of the developed world.

In today's harsh economic climate, China's GDP growth outlook has suffered a set back. One man's trash, however, is another man's treasure. The World Bank sees Chinese GDP slowing to a turtle's pace of just 7.5% in 2009! That rapidity of growth is impossible to imagine for the developed world, and would be more troublesome than wanted due to inflation concerns.

China's population size would seem to make that kind of growth impossible, judging by the law of large numbers. Recall, as numbers grow, the rate of growth becomes harder to maintain, and change more difficult to accomplish. Thus, the reality of Chinese development, with GDP seen growing 9.4% in 2008, illustrates the magnitude of the giant nation's still untapped potential. At the same time, it makes clear China's future global leadership role.

The economic importance of China's internal development is evidenced by its decreasing reliance upon exports. Recently the key outsource provider of the world's goods due to cost advantage, declining exports are now only a speed bump in GDP pace. The World Bank estimates export growth will slow to 3.5% in 2009, from 11% in 2008. Yet, GDP growth will stick stubbornly high, though admittedly benefiting from government help.

In summary, the World Bank's report paints a pretty picture for China. It indicates the global slowdown offers China a chance to take a breath and clean house a little. Previously, the pace of domestic and export demand had China producing at any and all cost, often making social sacrifice for profit. The nation's stimulus package now offers China a chance at introspection.

It provides direct investment, and according to the Bank, is responsible for more than half its '09 growth projection. The funding certainly seems like yuan well spent. Chinese infrastructure, service sector and social responsibility look to benefit. One such social gift is offered to the environment as well. Time avails now for China to more effectively incorporate alternative energy and environmental protections into its economic engine. This is a benefit that in one way or another reaches us all. You can measure it in lower fuel, energy and commodity prices, or in carbon pollution levels.

What might seem a selfish catalyst, has broader benefits. China is not the only nation gaining from its domestic focus. Commodity trading partners Australia and Mongolia will see offsets to China's softer export demand, as China retains need for iron ore, copper and other resources for infrastructure development. The world also gets a breather, during which it should continue to develop alternative energy resources before the global economic engine revs up again.


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