China powering world economy
By Patrice Hill
July 26, 2007
Investors monitor the screen
showing the stock indexes at a brokerage firm in southwest China's Chongqing Municipality today. China's shares closed at
a new record high today, adding to recent strong gains on upbeat expectations of higher corporate profits.
year for the first time, has dislodged the United States from its long reign as the main engine of global economic growth,
with its more than 11 percent growth eclipsing sputtering U.S. growth of about 2 percent, according to the International Monetary
Fund's 2007 projections released yesterday.
China's growth, which has been fueled by booming domestic building and
commercial development, as well as soaring exports, has accelerated even as U.S. growth dropped to 0.7 percent in the first
quarter under the weight of a profound housing recession. China is expected to drive a hearty 5.2 percent expansion of the
global economy this year, the IMF said.
The United States, with one-quarter of the world's economy and the richest
consumer markets in the world, has dominated global growth for decades. But China's emergence has been foreshadowed for years
by its pull on world commodity markets, where it has driven up the price of raw materials to record levels, from oil to copper,
in its race to build and export goods around the world.
"This year for the very first time — with its very strong
growth expected, and with the growth slowdown in the United States — China will be contributing the largest part to
the increase in the global growth measured at market exchange rates," said Charles Collyns, the IMF's deputy director of research.
will provide one-quarter of the annual growth rate of the world economy, and, Mr. Collyns said, "if you add together Russia
and India as well, you get over half of global growth coming from the emerging-market countries."
Although the IMF
expects U.S. growth to rise back above 3 percent in the second quarter, it predicts that spreading housing and credit problems
will push it back into the 2 percent range by year's end. In a reversal from previous years, economists expect exports to
fast-growing global markets to be an important contributor to U.S. growth this year while consumer spending on imports fades,
a trend that promises to help tame the nation's huge trade deficits with China and other countries.
insatiable appetite for raw materials with its huge footprint in world export markets has given it the key role of locomotive
for other economies as diverse and far away as New Zealand and Saudi Arabia. The spigot of revenues that resource-rich countries
such as Russia have earned, in turn, has fueled booming domestic markets for building and consumption.
in Europe and Japan also is contributing to a healthy world economy this year. Many economists attribute the improvement there
as well as in emerging countries such as Russia and Brazil to the successful adoption of U.S.-style economic policies —
among them, lower taxes, less-regulated labor markets and stable monetary regimes. China also is benefiting from the imposition
of economic reforms through its entry into the World Trade Organization.
"This is a good global economy. It's remarkable,"
said John Taylor, a scholar at Stanford University's Hoover Institution and former Treasury official. "In the 1990s, there
was one global crisis after another, but we haven't seen one since 2002."
The adoption of stable, low-inflation
monetary policies in Brazil, Mexico, South Africa and Turkey and the enactment of low, flat taxes in Russia and some Eastern
European countries during the 1990s are paying major dividends with strong growth that is helping to pull the U.S. out of
an economic slumber, he said.
After years of preaching by the U.S. and IMF about the benefits of good economic
policies, "countries are following better policies all over the world," he said, resulting in lower inflation and interest
rates and healthy growth.
Most impressive is the way soundly managed Latin American economies such as Brazil, Mexico
and Chile have resisted calls from Venezuelan President Hugo Chavez for a return to the popular socialist policies that held
back Latin growth and spurred hyperinflation in previous eras, he said.
"I don't see any enthusiasm for him from
other Latin American countries," other than a few small economies like Bolivia, he said, despite the oil subsidies that Mr.
Chavez has been lavishing on the region in an effort to gain allies.
"The change you're seeing began in the U.S.
during the 1980s and spread to other countries in the 1990s," he said. "We have more balanced growth, and globalization is
causing more interconnectedness. It spreads the riches around."
While China has adopted some economic and financial
reforms, it has resisted calls from the IMF and U.S. for reforming its fixed-currency regime, which economists think is keeping
the yuan artificially low against the dollar. The result has been unprecedented U.S. trade deficits. Mr. Collyns said the
exchange-rate distortion also has had the effect of making China's economy appear smaller than it really is, masking the influence
that the Asian giant has been exerting on the world economy for years.
With better economic regimes in place, countries
like China and India, with populations of more than 1 billion apiece, have the potential for explosive growth that can quickly
outstrip the U.S., with its 300 million population.
Even though large parts of China's economy remain poor and
underdeveloped, it is on course to exceed the overall size of the U.S. economy within a few years, and the emergence of rapidly
growing middle classes in countries such as India and Russia put them not far behind.
"The baton of global consumption
is being passed from the developed nations in general, and the United States in particular, to the developing nations," said
Joseph P. Quinlan, chief investment strategist at Bank of America.
"Consumption is no longer the domain of the
U.S. Going to the mall on Saturday afternoon is just as popular in Bangkok and Sao Paulo as it is in Boston and San Antonio."