Global News Journal
Beyond the World news headlines
China, and the slowdown showdown
America caught a cold and now China has one too.
IMF chief Dominique Strauss-Kahn said on Monday that the Fund could cut its forecast for China’s economic growth in 2009 to around 5 percent. To think that only last year China was galloping at a double-digit clip. It’s staggering, and it’s worrying.
Worrying, for one thing, because - as the Heritage Foundation’s Derek Scissors puts it - ”the American economic slump is running into the Chinese economic slump, creating the conditions for a face-off between Beijing and the U.S. Congress, possibly leading to destabilization of the world’s most important bilateral economic relationship”.
He argues that the new U.S. administration, confronted with a record-breaking bilateral deficit and soaring unemployment, could impose prohibitive tariffs or erect other barriers to Chinese goods. The EU, Japan and others would then be permitted by WTO rules to raise barriers against a diversion of Chinese goods to protect their markets, and “some form of Chinese retaliation is certain”.
“If intemperate, such retaliation will prompt further action by the U.S. and perhaps other countries, threatening the global nature of the trading system,” Scissors concludes.
Michael Pettis, a professor of finance at Peking University, blogged on the same theme last month, warning that Smoot Hawley, the notorious U.S. tariff act that contributed to the Great Depression of the 1930s, could return in a different guise.
The political price of recession
As journalists, we spend a lot of time watching politicians and policies to guage their impact on financial markets and economies. Now, as recession takes an inexorable hold in the Asia-Pacific region, we’re watching for the impact on politicians themselves.
So far there has been no repeat of the political upheaval triggered by Asia’s economic crisis a decade ago, which culminated in the ignominious resignation of President Suharto in Indonesia and the ouster of Thailand’s prime minister (see previous blog). There are no food riots as there were back then, and Asians are not crowding at banks’ doors to rescue their savings.
The Economist magazine argues this week that Asia’s economic downturn will be milder than the one it endured a decade ago, when Asian governments begged households to be hand over their jewellery to be melted down to bolster official reserves.
That seems to be the consensus view. The president of the Asian Development Bank, for instance, argued in a speech this month that the region was well positioned to weather the global downturn and predicted that it should “avoid a full-fledged financial crisis”.
So can the region’s politicians breathe easily? Probably not.
In New Zealand earlier this month, Helen Clark’s nine-year-old Labour government was bounced from power by voters. Analysts reckon she was always heading for defeat at the hands of an electorate ready for change, but any hopes that she would make a last-minute comeback were dashed by the economy’s slide into recession.
Hopefully, the United States will approach this world wide global economic situation a whole lot better than it did at the last World Trade Conventions when the US Trade Reps stuck their noses up in the air, walked away from the event and shut it down. What a totally disgusting approach. Sad. Pathetic. You wonder why things are not going well. And just where has the Federal Reserve been? The Federal Resrve is open for approximately 6 hours a day – 5 days a week. Do you have any idea the huge volumn of business from around the world that is turned away. For instance, China has to conduct its business with the US Federal Reserve at midnight their time. Wake up US muk muks. The US Federal Reserve should conduct business 24/7 with three1 hour breaks a day to balance their activity and perform auditing functions. Sad. Really pathetically sad.