U.S. economy slowed sharply in the fourth quarter of 2007, growing at a 0.6 percent annual rate, far below the previously predicted 1.2 percent and down from 4.9 percent in the third quarter and 3.8 percent in the second quarter, according to statistics released by the US Department of Commerce on January 30. For all of last year, noted the statistics, the U.S. economy grew only by 2.2 percent, the worst showing since 2002.
Moreover, some economic data released by the relevant authoritative US agencies successively also show that the consumers market has beeno in decline with dejected consumption and rising unemployment. The latest confidence index of consumers has slumped to a 14-year-low.
Back in the last quarter of 2007, Harvard University economist Professor Martin Feldstein, a member of the group that dates US economic cycles, said the actual gross domestic product (GDP) could grow slightly and turn even stagnated. Feldstein has also estimated a greater than 50 percent chance of recession.
Meanwhile, New York University economist Nouriel Roubinin argued that the housing decline will put 10 million home owners upside down. It was not only difficult to avoid an economic recession but also possible for the banking system to crumble with inadequate fluidity and tightened credit, he acknowledged pessimistically,
Confronted with a rapidly declining U.S. economy, the United States, the European Union (EU) and Japan and other Western countries strive to prop up U.S. economy and global economy as well. US Treasury Secretary Henry Paulson reportedly said on February 9 at a finance ministers' meeting of G7 nations that he was confident the US economy could avoid a recession, even through its growth is likely to slow down.
Furthermore, George W. Bush in his February 11 presidential economic report said the US economy would continue to grow in 2008 and not head into a recession. The report forecasted that the U.S. economic growth rate would be 2.7 percent in 2008 and hopefully reach 3.0 percent next year.
The criteria to judge or determine whether or not a nation's economy has sunk into a recession is precisely to see if there has been a negative growth for two consecutive quarters. If a slight economic growth is recorded in January, a recession is unlikely for the whole of 2008, as Bush administration has resorted to a series of viable anti-recession measures, which wouldl give scope to a maximal role after six months. Even if the U.S. economy is fortunate enough to avert a recession, a drastic slowdown is still beyond question. So the U.S. economy will likewise slide, and it will in turn have a great, penetrating impact on the Chinese economy.
The US sub-prime mortgage crisis, which triggered a global credit crisis, and a drastic economic slowdown can impact China's economic growth from three aspects. First, exports drop by a big margin. Forty-eight percent of China's export commodities are sold to the U.S. EU and Japan, with the nation's net exports to U.S. and EU valued at some 300 billion US dollars. Since expert products contribute to more than 30 percent of China's overall economic growth, the economic slowdown in the U.S. and EU economies is sure to negatively influence the Chinese economy directly.
Second, the situation with excess fluidity can possibly be reversed. The US sub-rime mortgage crisis has, as a matter of fact, reversed the excess fluidity, and this is bound to have an impact on China. Third, a negative fortune effect downgrades the desire of consumers. China's domestic (consumer) demand has risen for two successive years in 2006 and 2007, and the fortune effect of stock markets in China has made an indelible service. China's stock market, though a secluded market, has already been subjected to a direct impact of the sub-prime crisis through the infiltration by Hong Kong stock markets.
China has proven to the world its capability to cope with difficulties via its proactive monetary policy during the Asian Financial Crisis of 1997-98 and the ensuing global economic recession in 2001. Today, can it again perform its miracle, which is of interest to both the United States and the entire world.
Things have changed with China, whose aggregate economy at the time was only 1 trillion US dollars, merely three present of the global economy then, whereas its present GDP has now surpassed 3 trillion dollars, or approached seven percent of the world's economy. To date, most Western economists and scholars deem that China is able to fend off the impact wrought by the sliding US economy. Chinese citizens, too, have full reasons to pin high their hopes on its economic growth this year, as China now has an increasingly mature mechanism for macro-economic control.
By Zhou Xiaojing, a researcher and the director of the Institute of Asian & African Development Studies affiliated to the State Council Development Research Center and translated by People's Daily Online
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