China surpasses United States as engine of global economic growth

(Washington Times, The (KRT) Via Thomson Dialog NewsEdge)

Jul.26–China, this 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 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.

China 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 to 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.

China’s seemingly unquenchable 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.

Better growth 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 such as 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 more than 1 billion citizens 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.”

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Copyright (c) 2007, The Washington Times

One Comment to “China surpasses United States as engine of global economic growth”

  1. Power is a fickle beast. The USSR did not last long as a superpower. It appears that the US will not either. History is littered with the corpses of men, cultures and nations who wanted to own the world or significant parts of it.

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