Houston Community News >> Chinese Slowdown Shows Growing Dependence on World

10/25/2007 BEIJING-- China’s economy is more integrated with the world than ever before, and its slight slowdown in recent months is more likely due to a global cooling than Beijing’s efforts, analysts said Thursday.

“Investment in the third quarter didn’t show a very big change compared with what we saw in the months before,” said Huang Yiping, a Hong Kong-based economist with Citigroup.

“So I believe the change in economic growth, if there is any, was impacted by economic changes in the outside world,” he said.

The government credited its own range of measures, such as five interest rate hikes this year, with the slight cooling and what it described as a successful steering of the economy away from overheating.

“Due to the macrocontrol policies adopted by the central government, we have prevented the economy shifting from speedy growth to overheating,” statistics bureau spokesman Li Xiaochao told a briefing in Beijing.

But the view that the global economy is the main factor seemed supported by calculations suggesting a sharp reduction in the impact net exports had on the overall economy in the period from July to September.

In the third quarter, net exports contributed 17 percent to nominal gross domestic product growth, down from 25 percent in the second, and the lowest level since early 2006, according to Goldman Sachs’ calculations.

This came at the same time as forecasts increasingly painted the picture of a gentle deceleration in global economic growth.

Citing financial market unrest stemming from the high-risk US subprime mortgage sector, the International Monetary Fund lowered its forecast earlier this month for world economic growth in 2008 to 4.8 percent from 5.2 percent.

In particular, a softening of US economic activity was likely to be the main reason why Chinese exports to the American market were now expanding at just 10 percent a year, according to economists.

Li, the bureau’s spokesman, also acknowledged China’s deepening integration with the world economy.

“Following nearly 30 years of reform and opening up, the ties between China and the world economy are becoming ever closer and the mutual influence is gradually increasing,” he said.

“Going forward, the uncertain factors in the world economy could lead to some uncertainties for the local economy. We will carefully observe changes in the global economy and their possible impact and adopt necessary measures.”

To be sure, China’s dependence on the world should not be overestimated, given a huge home market of 1.3 billion increasingly affluent people and that 80 percent of economic activity has domestic sources.

But it is clear that nearly six years of membership in the World Trade Organisation has had a profound impact and that millions of Chinese now ultimately derive their salary from foreign consumers.

“They’re very vulnerable to a global slowdown now. More vulnerable than they were five years ago,” said Stephen Green, a Shanghai-based economist with Standard Chartered. “A lot of the job growth in the past five years has come from the export sector.”

In the coming months, the external link is likely to become even more obvious, according to Sun Mingchun, an economist with Lehman Brothers.

“Weakening global growth and the impact of the previous tightening policies... will have likely have a larger impact on the Chinese economy in the fourth quarter of 2007 and 2008,” Sun said in a research note.

(Contributed by AFP)