US recession may help China
Monday, 28 January 2008

Asia News Network . Beijing

A significant US economic slowdown could help China become consumer-driven rather than export-oriented, economists said.

But they warned it would be a difficult process, as domestic demand could drive up prices—especially in areas where markets are less efficient.

Wang Qian, an economist at JPMorgan Chase Bank, said domestic consumption is becoming a bigger factor in the nation's economic growth.

'Though a possible US recession would drag down other economies, China would be the exception, as a US-led economic slowdown would pressure the nation to expedite economic restructuring,' Wang said.

'Of course, without a US slowdown, China would also be on the way toward balanced economic growth, but the process could take much longer,' she said.

But increased domestic demand for a wide range of goods and services may not be met by a less-than-efficient supply system that is sometimes distorted by bottlenecks.

This would lead to the irrational price increases that cause CPI fluctuations. 'If China's exports to the US and other European countries start falling, domestic consumption will become a major force to sustain the nation's economic growth,' said Shen Minggao, an economist at Citibank China in Beijing.

'A transparent market is needed to ensure supply is not easily disrupted by profiteering and to get CPI growth back to an acceptable level,' Shen said.

'Taking effective measures to rein in inflation should be the government's prime focus in 2008.' Many economists are calling for an efficient supply and distribution system to match higher domestic demand. Zhao Xijun, a finance professor at Beijing's Renmin University of China, said more effort was needed to structure consumer products to cater for wide domestic demand.

Economists said a smaller trade surplus resulting from lower export growth to the US would also help alleviate pressure on renminbi appreciation in 2008. Stephen Green, head of research at Standard Chartered China, told China Daily: 'A more severe US slowdown, which drags export growth below 15 per cent year-on-year, would increase the chances of a slower renminbi appreciation rate.' Jonathan Anderson, UBS Securities' chief economist for Asia, doesn't expect China's trade balance to fall this year, but said the surplus will peak in the next few quarters.

That would mean a long-awaited slowdown in headline GDP growth, as rising net exports contributed more than 2 percentage points to real growth in 2006 and 2007.

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