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economic giants alone do not have the clout to drag the global economy
out of its worst slump since the 1930s, analysts say. China, ranked
the world's third largest economy after the United States and Japan,
grew 7.9 per cent in the second quarter this year while India expanded
5.8 per cent in the three months to March. Such rates are
relatively modest by their standards but stand out sharply as the
United States, Japan and Europe are all mired in deep recession as
their economies struggle through the fallout from the global financial
crisis. Chinese and Indian demand has largely kept raw material
prices afloat this year-a key plus for exporting countries such as
Australia and Brazil-while also offering hope against the prevailing
gloom. The two countries 'send out a positive message at a time
when the trend is dark and this can help reassure the markets,' said
Michel Fouquin, international affairs analyst in Paris. But beyond
this psychological comfort, China and India have only a marginal
impact on the wider global economy because they are exporters with
limited domestic demand- ultimately, they are relying on the developed
world to recover first before they too can move ahead once more.
'There is no way that the world economy can get back on its feet again
just through (the efforts of) the emerging giants,' said Eric Chaney,
chief economist with Axa. China and India may drive demand for raw
materials and the other inputs they use in their own exports from
Brazil, Australia and the smaller Asian countries but that is not
enough for recovery in the developed world. 'I'm much less
convinced that either China or India can (provide) a significant boost
to other economies,' said Eswar Prasad of Cornell University.
'India and China can provide an indirect boost . .. by maintaining
domestic demand and providing a sense of confidence to the world
economy that the recovery is in progress ... but their contribution to
the world economy is going to remain modest,' Prasad said. The
United States, Europe and Japan are the key markets for goods and
services sold there by the great exporters such as China which has a
much smaller domestic market despite efforts to boost home
consumption. Richard Herd at the OECD in Paris noted too that in
China, the share of imports in 'total demand is relatively small,
essentially because it's a very large economy and there's a very large
degree of self-sufficiency in many areas.' It has been a
longstanding complaint in Washington that China's economy is
dangerously reliant on exports for growth, leading to huge global
imbalances that can no longer be sustained. US officials said on
Thursday that President Barack Obama's administration will tell China
at an upcoming meeting that the role of consumption as a major driver
of the US economy is diminishing. 'There's been a fundamental
change in the US economy ... US households are raising their savings
rates, so this is going to a less consumption-led recovery than what
they're used to,' a senior official said. 'Our message to the
Chinese is going to be-If you want to achieve your growth objectives,
you're going to have to find a different way of doing it than through
export-led growth,' he said. The bottom line is that 'the global
recovery will only come from a pick up in (consumer) demand in North
America and Europe,' said Chaney. The BRIC four-Brazil, Russia,
India and China-may protest all they want against the dominance of the
dollar-led world trading system but they have no way of opting out of
it given their relatively modest economic strength, said Jean-Paul
Betbeze, economist at French bank Credit Agricole. Longer-term,
their influence will grow but for now they have much more work to do
to meet coming challenges, especially likely changes to their favoured
export-led model of economic development, analysts said. 'The
Chinese have no other alternative but to boost their domestic market,'
said Prasad of Cornell University.
