×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

Can India and China save the world’s economy?

Can India and China save the world’s economy?
AFP
Comment E-mail Print Share
First Published: Sun, Jan 27 2008. 10 20 AM IST
Updated: Sun, Jan 27 2008. 10 20 AM IST
Shanghai: With fears mounting of a global economic slowdown, some analysts predict developing giants China and India, with their booming growth, will help lessen the impact.
Stock market turmoil this week triggered by fears of a US recession in the wake of a massive mortgage crisis has ignited debate over whether Asia’s two rising economic stars are strong enough to power the world economy.
This directly challenges the 20th-century economic adage that when the US economy sneezes the rest of the world catches a cold.
“What is occurring is the rise of other economies to balance out those of the US ,and that has to be a good thing,” said Chris Devonshire, a business consultant specialising on China and India trade.
“The US has problems but these will be offset against markets elsewhere. The new world order is working,” he told AFP.
China saw scorching expansion of 11.4% last year, closely followed by India’s 9.4%, and the prospects for both economies remain strong.
“We expect China and India to support regional growth in the event of a significant slowdown in the US,” said Prakash Sakpal, economist, ING Barings Asia.
Such a shakeup is significant because jobs and livelihoods are at stake, but also because, as financier George Soros wrote in the Financial Times, it could signal a major shift in economic power.
“The current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.”
But Zhang Ming, an economist at the Chinese Academy of Social Sciences, dismisses the notion that the Chinese and Indian economies are independent of US consumption.
“If you want to look at who is going to be the motor of global growth then you have to look at who provides the biggest market for the world’s production of goods,” said Zhang.
“In the short run America is still strongest. China still has a long way to go.”
China, whose 3.4-trillion-dollar economy is about one-third derived from exports, could easily face economic difficulties if it were to lose the 2.5 growth percentage points garnered from trade, said Stephen Green, a Standard Chartered economist.
However, Indian exports represent only about 17% of its $1.1 trillion gross domestic product, allowing it greater resiliency in the face of a US recession, analysts said.
“Our economy is geared to domestic demand. We are insulated so that even if there is a US recession it will not have such a direct impact on the Indian economy,” said Anjun Roy, economic adviser, Federation of Chambers of Commerce and Industry.
But given that India’s share of world trade in 2006 stood at 1.5%, it is not in a position to boost the world economy, Roy said, citing official statistics.
According to data published by the World Trade Organisation, China’s merchandise exports last year totalled 8.0% of the world total, while imports stood at 6.4%. No cumulative figure was provided.
However, Stephen Roach, a leading economist as head of investment bank Morgan Stanley in Asia, said this week that the idea China and India could power the world economy on their own could “turn out to be a fantasy.”
Roach, who is forecasting a US recession, also argued in a recent note that when the US consumer is in trouble this has great consequences for the world economy.
He calculated that the American consumer spent a combined $9.5 trillion last year while Chinese only laid out $1 trillion dollars and Indians $650 billion.
“It is almost mathematically impossible for China and India to offset a pullback in American consumption,” he said.
Comment E-mail Print Share
First Published: Sun, Jan 27 2008. 10 20 AM IST
More Topics: World | Economy | China | US | India |