GE (GE) management has a theory. With its business growing at 15% to 20% in large countries like China and India, a slowdown in the US economy may barely dent its overall growth. Jeffrey Immelt told the FT that in spite of the troubles sparked by the credit squeeze, “outside the US, particularly in China and India, economies appear strong”.

Mr.Immelt is pushing a theory called “decoupling”. A slow US economy will not hurt multinationals if big overseas economies continue to grow quickly. And, the theory is right, if it works.

What GE and other global companies are not saying is that a sharp drop in GDP in the US and Europe would dry up much of the demand for goods from countries like China. That, in turn would do damage to those economies. Since they are so overheated, the drop in their output could cause a recession more severe than any that is likely to happen in the US. China, in particular is a house of cards dependent on its annual 10% GDP improvement.

If the Chinese economy falters, that will put brakes on some of GE’s big plans there.

The other issue in China and India is protectionism. China has already brought Mattel (MAT) to it knees over criticism of the big country’s manufacturing quality. It would not take much friction with GE or any other large US company to create a similar reaction.

Other than those things, the GE plan is perfect.

Douglas A. McIntyre

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