Intersecting Minds: Education, Business and Technology at the North Carolina State Jenkins Graduate School of Management

The New Global Economy | October 22, 2009

Just a few hours ago, China announced year-over-year economic growth of 8.9% for the third quarter. This news spurred economic activity around the world as investors from the United States to Europe to Asia reacted to the strong report. Amongst the effects:

  • The Shanghai Composite Index fell as investors worried that China may now withdraw stimulus funding
  • The US Dollar strengthened against all major currencies based on the same worry about China withdrawing stimulus funding and its continual purchase of government-issued US Treasuries
  • Growth in industrial production has helped companies with a manufacturing presence in China. The Bloomberg article makes special note of Volkswagen, who saw a 13.9% increase in sales over last year of their automobiles

Watching the global economic recovery unfold, it’s clear that China and other surplus-carrying nations will be the ones who lead us out of the recession. If China continues to spur consumer spending, its huge population has the potential to move alongside the United States as the primary driver of global economic growth. Since WW2, US consumer spending has driven the global economy forward, but one of the causes of the global economic downturn has been over-reliance on the US economy and consumer spending to drive growth. By mid-2005 the US consumer had reached a negative savings rate, and this was obviously an unsustainable means for driving expansion. Meanwhile, China (and many other Asian countries, i.e. Japan and Korea) that were sporting large foreign account surpluses also had populations with very high savings rate.

In other words, a huge imbalance existed. It now appears that the global economy is beginning to rebalance as the United States personal savings rate has crept back towards the 6-8% range, and the Chinese consumer has begun to pick up spending. As China continues down this path, they should see their influence and impact on the global economy continue to grow. Now, many exporting countries and businesses are becoming more attracted to China and the explosive growth that has now apparently returned.

This is the direction of the new global economy: a waning, but still powerful, American influence complemented by the growth of the huge, emerging market that is China.

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1 Comment »

  1. […] on China | Oct 25th 2009 Following up on my post from a few days ago about China, none other than foreign affairs expert Fareed Zakaria penned a […]

    Pingback by More on China « Intersecting Minds: Education, Business and Technology at the North Carolina State Jenkins Graduate School of Management — October 25, 2009 @ 12:06 pm


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