But the slowdown in China was exceedingly brief. In response to the downturn, Beijing rolled out an enormous stimulus package worth four trillion yuan or $570-billion (U.S.). China’s economy took flight almost immediately as a slew of infrastructure projects including roads, rail and buildings sparked bank lending and GDP growth.
As those projects got under way in cities like Chongqing and Wuhan, they sent positive ripple effects half a world away to Canada’s resource-driven economy. Chinese demand for coal, copper, iron ore, petroleum, lumber and other commodities almost single-handedly brought the resource market back to life and helped Canada weather the economic storm better than most Western nations. China is now responsible for more than 40 per cent of the world’s metal demand.
The great recession was China’s time to shine. The Asian economic superpower led the world out of the downturn, as its breakneck growth sparked global recovery and helped Europe and North America get back on track. In the process, China vaulted to the rank of second-largest economy on the planet as well as the world’s largest exporter.
Now, nearly three years later, as a debt-laden Europe and a jobs-starved United States teeter once again on the precipice of recession, all eyes are back on China. Can the Middle Kingdom save the world again?
The answer, according to experts on China’s economy as well as Chinese business owners and consumers, is probably not. At least, not in the same way it did last time.
China’s economy is in a very different state today than it was at the start of the global financial crisis in 2008.
The country is still dealing with the side effects of its previous stimulus package: burdensome local government debt, stubbornly high inflation and a red-hot housing market that many say is set to blow up.
“I don’t think China will fill the void of growth that is left from a slowdown of the Western economies at this stage,” said Na Liu, the founder of CNC Asset Management and an adviser on China strategy to Scotia Capital.
“A new ‘shock and awe’ stimulus package from China like the one in 2008 is almost impossible at this stage.”
At the same time, China’s economy is decelerating from the more than 10 per cent GDP growth it enjoyed in 2010.
A third month of slowdown in manufacturing highlighted by a weak HSBC Chinese purchasing manager’s report this week contributed to the market mayhem that sent global stocks into a tailspin and investors rushing for the safety of bonds.
Economists are cutting China’s growth forecasts. The International Monetary Fund sees growth slipping to 9 per cent next year from 9.5 per cent this year. London’s Capital Economics cut its 2011 outlook to 8.5 per cent from 9 per cent. Western countries can only dream of such growth, but for China it’s a gear down.
“China’s economy is weaker today than on the eve of the global crisis three years ago and won’t be able to shrug off the problems elsewhere or be able to completely offset them,” Mark Williams, the firm’s chief China economist said in a report this week.
Indeed, Chinese manufacturers, a crucial element of the country’s export-driven economy, today are grappling with a host of problems they didn’t face just a few years ago. Spiking labour and production costs, along with fast-rising competition, are grinding China’s manufacturing engine.
In Songjiang, an industrial suburb of China’s financial centre Shanghai, chemicals waft in the breeze as Chen Yun gestures to a brand-new dark-red Chevrolet Cruz with palpable frustration.