There's been a lot of talk in recent weeks about how China could ride to the rescue of a global recession, using the latent power of 1.3 billion consumers to power global GDP. Who would have thought that we'd be calling on China to save our bacon? Witness a New York Times editorial on Oct. 26 with the remarkable headline: "As China Goes, So Goes...." What the Times called for, and what others have seconded, is for China to unleash domestic demand, ramp up imports, thereby keeping the global economy afloat.
First, before we get into why this probably won't happen, let's pause for a second to reflect on just how amazing it is that we're asking China to prop us up. Yes, yes, China did yeoman's work during the Asian financial crisis of 1997. But that was a pretty localized mess. What the Times -- and others -- are asking China to do is not just be a responsible player in its region (which at the time simply meant not devaluing the yuan). No, what the Times and others want China to do is to step forward and in a flash take over the United States' position as the engine of global growth. That's a pretty big demand for a country with a per capita GDP that's in 109th place on the International Monetary Fund's World Economic Outlook Database, squarely between Swaziland and Morocco.
As to whether China will take up the challenge: I think not. China would have to restructure its economy if it wanted to significantly grow its domestic demand. But right now China's economy is facing real problems.
None other than Nouriel Roubini -- aka Dr. Doom, the man who accurately predicted the global financial meltdown -- is now turning his sights on China. The PRC is in for a hard landing, Roubini says. What could this mean? Significant political instability, Roubini suggests.
The operative nut graf in a piece by Roubini that appeared today: Let us be clear what we mean by hard landing. In a country with the potential growth of China, a hard landing would occur if the growth rate of the economy were to slow down to 5-6% as China needs a growth rate of 9-10% to absorb about 24 million folks joining the labor force every year; it needs a growth rate of 9-10% to move every year about 12-14 million poor rural farmers to the modern industrial/manufacturing urban sector. The whole social and political legitimacy of the regime of the ruling Communist party rests on continuing to deliver this high growth great transformation of the economy. Thus, a slowdown of growth from 12% to 5-6% would be the equivalent of a hard landing or a recession for China. And now a variety of macro indicators suggest that China is indeed headed towards a hard landing.
I think Roubini is right. I also think that all of these pressures will make China's leadership more conservative not less and therefore less likely to encourage more consumer spending of the type that the Times' editorial board and others would so like to see. In short, China's artificially low profile in dealing with this global financial mess is another example of how China's political system is blocking its rise to superpower status.