China Makes Claim To Lead World Economies

Based on claims from the Chinese government, which should not be a revelation to anyone given their source, the economy of the world’s most populous nation has begun to turn around. That would put it several months, if not quarters, ahead of the world’s other large economies. If the pretensions are correct, China has the opportunity to make a real claim for its role as the critical driver of global GDP.

According to the AP, “Premier Wen Jiabao said China’s economy was showing `positive changes’  but called for more efforts to combat the impact of the global financial crisis.” In other words, his nation is doing relatively well but the balance of the world needs help. China’s central government would almost certainly credit its $585 billion stimulus package as one reason for the rebound, but that is not the critical claim.  It would have the world believe that its economy is simply more robust and resilient than those in the US, Japan, the UK, and EU. The country’s leadership has already made the case that its semi-regulated approach to fostered growth has trumped the corrupt and greed-driven financial engines in the developed world which has been, in China’s view, the primary source of the erosion of the world’s credit system.

The premier’s statements are more than an empty boast. Crude oil imports into China hit a one-year high last month, a sign of strong demand in the industrial and transportation sectors. Car sales also hit a record in March. The central government said, in addition, that its manufacturing sector grew last month for the first time since October.

While China’s GDP may not do as well as the government’s stated goal of 8%, any number above 5% in 2009 would be impressive when compared to the contraction in the West which looks like it could last through the entire year.
If China is recovering faster than other countries from the global downturn, one reason may be that its stimulus package is better designed and better implemented that those elsewhere. The People’s Bank of China, the country’s central bank, says its approach to helping the economy is simply superior. “In modern Western societies,” Zhou Xiaochuan, the head of the bank said,” a prolonged political process for mandates to finance ministries or central banks often miss the best timing for action.” So, the speed at which China can put stimulus into the economy is better than what other governments can muster.

A superior stimulus package, even one applied to the economy almost perfectly, does not let China lay claim to being better able to maintain GDP growth than other large nations. Stimulus packages like the ones being employed now in most large countries only come along every few decades. They are not a reasonable basis on which to measure which nations are the most commercially and financially robust over long periods.

China’s boasting cannot be based entirely on exports either. China’s trade partners are simply too weak for the country to look to what it can manufacture and ship abroad as the source of a fast and broad-based recovery.
The most powerful, and only iron-clad, case China has to prove that it has begun to move into the first position among the world economies is the strength of consumer consumption inside its borders. Since WWII, consumer spending has been the backbone of GDP growth in the US, alongside perhaps, military spending. If China’s consumer activity has not been significantly diminished by a slowdown in manufacturing  and a resulting rise in unemployment, then the country has created the critical catalyst that has been the key to success in every important economy—a middle class which may bend in a recession but will not break.

China at least has the potential to have the largest middle class in the world because it has 1.3 billion people. Since a large portion of the population is still rural, the process of creating consumers may only be in its early stages. If it continues to be successful, China may actually come out of the recession with a meaningful edge over the US as the preeminent driver of global GDP, perhaps not in size yet, but certainly in its ability to affect global economic improvement.

Douglas A. McIntyre