"Kurt Karl, chief U.S. economist for Swiss Re, said the 8.7% economic growth in China last year is a major part of the reason the global recession likely ended in the middle of 2009.
Concerns about the fragility of that recovery, especially in light of debt problems dogging Europe right now, makes any slowing of Chinese growth a reason for concern everywhere.China has become a big part of the engine of growth. It's stabilized the global economy through this downturn," said Karl.
But Karl and Wyss both believe the markets overreacted a bit to Friday's tightening in China.
Karl said that even with these steps and more moves expected later this year to slow the Chinese economy and keep prices in check, his firm recently raised its GDP forecast to growth of 9.4% this year. By contrast, most economists are forecasting only about 3% growth in the United States this year.
Karl said Friday's sell-off is due more to the uncertainty about Chinese policy than worries about an actual slowdown there.
"What the Fed is doing is built into the market. They've been fairly transparent," said Karl. "But the Chinese are so opaque that whenever they make a move, the timing is a surprise."
Slower U.S. exports ahead. Wyss said the biggest impact of a slowdown in China on U.S. businesses would come from reduced demand for U.S. goods.
China bought nearly $70 billion of U.S. goods in 2009, making it the No. 3 destination for U.S. exports, behind only Canada and Mexico."
So my question to you is, should the greatest concern for U.S. businesses and investors be the stability of the economy and central bank of China? If not, what should it be? Has China really become more important to the U.S. then the Federal Reserve?
I honestly do think that, considering how much money we have borrowed from China, it should definitely be a concern. There is the troublesome thought that if China's economy crumbles, all of the people who invested in loans to our government will want to cash them in, which would be really bad.
ReplyDeleteI definately think that this should be a concern for us and any nation that does any kind of business with china. Like the article said economies are becoming more and more global and more and more intertwined with other nations. The U.S. is no acception and a major change in the Chinese economy will result in changes in our economy.
ReplyDeleteI agree that this should be a great concern. No. 3 destination for U.S. exports means that lots of people in the U.S. make a living by trading with China. The tightening of credit in China will definitely cause a decrease in people's level of consumption and ability to import, then making people and economy in the U.S. suffer from it. However, the Federal Reserve, as a public institution in the U.S., will certainly try everything to help the US economy. So the greatest concern should be China, which does not mean central bank of China is more important than Fed, its just that US cannot have any control on bank of China, but not the Fed.
ReplyDeleteI think change is going to work well in China's favor. One of the biggest problems that's going to need to change is China's currency will need to appreciate in relation to the dollar. This would also be necessary for American trade, especially since Obama mentioned plans to double exports by 2014 in his State of the Union address, and a high yuan would make America's exports more competitive and lower China's trade surplus.
ReplyDeleteIt's completely sensible that the way of thinking must become more global. I think, compared to how it used to see things, the USA is going to need to spend more energy understanding global economics, than just its own. I wouldn't say that China's bank is more important than the US Fed. Reserve, but it needs more attention now than it's ever received.
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