Nouriel Roubini: Outlook for China’s Economy in 2009 and Beyond
I recently spent a few days in Beijing attending the China Development Forum. This is the yearly highest level encounter between a group of foreign businesspeople, financial sector participants and academics with the most senior level Chinese economic policy leadership, an event capped by a final meeting with the Premier Wen. The topic of this year’s Forum was China’s Development and Reform in the Global Financial Crisis. The gap between the foreigners assessment of the risks to the global economic and the mantric repetition by the Chinese that they will achieve this year their targeted growth rate of 8% (caveated only by the term “around 8%”) was the biggest disconnect in this dialogue between the Chinese and their guests.
Indeed, speakers such as Joseph Stiglitz, Marty Feldstein, Steve Roach, Ben Friedman and myself stressed – to different degrees – that the US financial crisis and recession are severe and protracted – the worst since the Great Depression – and that the need for the US consumer to retrench and for US net exports to improve implies that current account surplus countries – starting with China but also the rest of emerging Asia, Japan, Germany and other advanced economies with surpluses – cannot rely anymore on the US consumer to be the “consumer of first and last resort” spending more than its income and running persistent large external deficits. Thus, China and other surplus economies cannot be any more the producers of first and last resort spending less than their income and running ever larger current account deficits. China and other surplus economies will have – if they want to achieve and return to their potential growth – to rely less on net exports and investment directed to the production of more exportable and rely more on domestic demand, government spending in the short run but especially consumption over time, as consumption is dismally low (about 36% of GDP) in China.