An abiding belief held by many about the global economy is that the East is one gigantic Foxconn-shaped, steroid-boosted manufacturing facility, pumping out iPhones, shoes, clothing, refrigerators, air-conditioners, and defective toys that its own people could never afford. In this narrative, the only reason that measured Eastern GDP shows any kind of life is because the Western consumer steps into the breach to buy up these manufactures.
The confirming natural experiment would then be what was sure to occur post-2008, when Western imports collapsed. Here is what actually happened:
Top 10 contributions to world growth: 2007-2012. GDP evaluated at market exchange rates (Source: IMF World Economic Outlook, April 2012)
China became the single largest contributor to world economic growth, adding to the global economy 3 times what the US did. Since this chart shows GDP at market exchange rates, those who have long argued China’s RMB is undervalued must be standing up now to say that China’s real contribution is likely even larger. Sure, China undertook a massive fiscal expansion beginning November 2008. But, hey, everyone fiscal-expanded.
In number two position among the contributors to global growth is Japan. Yes, “Lost Decades” Japan helped stabilize the global economy more than did the US. Among the other top 10 contributors are the other BRIC economies, and Indonesia.
How is East Asian or emerging economy growth merely derivative when they had nothing among Western economies from which to derive?
Here’s the other interesting fact:
German exports to the rest of the world (Source: IMF Direction of Trade Statistics, 2011)
This chart addresses the question: How has Germany remained a successful export-oriented growing economy when its domestic demand is weak, the Eurozone is buying hardly anything these days, and German exports to the US have collapsed in the wake of the 2008 Global Financial Crisis? The chart shows that today Germany exports 30% more to Developing Asia than it does to the US. And this is not just a China effect: German exports to China account for just two-thirds of exports to Developing Asia overall. Also notice how as late as 2005, German exports to the US were still double those to Developing Asia.
The East grows only because the West consumes. Bitch please.
I’m on top of the world! Bitch please.
Also in:
- “The East grows only because the West consumes. Bitch please”, Sina Blog, 20 October 2012
- “The East Grows Only Because the West Consumes… It’s a Hypothesis”, EconoMonitor, 22 October 2012
- “The East Grows only because the West Consumes. Bitch please”, Global Policy, 23 October 2012
F……………………….Y………………………
Interesting hypothesis about the West’s consumption driving growth but regarding your second chart, shouldn’t you be looking at Net Exports not just Exports? A nation could have a large number of exports but yet have no trade deficit or surplus — in this case it would be hard to argue that this nation’s consumption is driving growth.
In macro aggregate demand story, yes, net exports would be the key. But in the view that greater trade volume and activity will increase learning by doing, efficiency from economies of scale, and so on, … gross exports matter too.
Not a very convincing reply to the very good point made by GusGus. It is also troubling that Quah describes China’s post-crisis stimulus package as “fiscal” expansion when 90 per cent of it consisted of a vast, government-ordained, splurge of bank credit. Of course, the cost of mopping up all the bad loans made as a result is likely eventually to fall on the Chinese taxpayer. But I don’t think that is what Quah means
Confucius say “90 per cent [of China’s post-crisis stimulus package] consisted of a vast, government-ordained, splurge of bank credit”.
My reading of what was done:
“09 November 2008 SHANGHAI — China announced a huge economic stimulus plan on Sunday aimed at bolstering its weakening economy, a sweeping move that could also help fight the effects of the global slowdown.
At a time when major infrastructure projects are being put off around the world, China said it would spend an estimated $586 billion over the next two years — roughly 7 percent of its gross domestic product each year — to construct new railways, subways and airports and to rebuild communities devastated by an earthquake in the southwest in May.
The package, announced Sunday evening by the State Council, or cabinet, is the largest economic stimulus effort ever undertaken by the Chinese government.”
(from http://www.nytimes.com/2008/11/10/world/asia/10china.html David Barboza. “China unveils sweeping plan for economy”, 09 November 2008)
Railways, subways, and airports — sound pretty fiscal and real-side to me.
Interesting points made by Zulu25000 and before him/her, Gus Williams (easier to have a genuine discussion if real names are used, I think).
I generally try not to bring up net exports because the conversation then quickly becomes that zero-sum confrontational one where some country gains only if another loses. Or that old chestnut is wheeled out: “But not every country can export their way out of recession.” The point is, post-2008, Asia imported massively (and exported too, certainly); and trade attracts benefits all around, period. Some countries, like Germany, increased their trade with and exports to Developing Asia, while their trade with and exports to others declined. This is just the same achievement we celebrate when we say in the last century, global trade increased massively, providing the growth engine for the global economy. We’re not looking at net exports then either, which globally always has to sum to zero.
As for the exact nature of the China post-crisis stimulus package, perhaps we’re splitting hairs here – I look at shovels moving earth and, in the right circumstances, adding value. That’s what happened here. Perhaps it is troubling (your term) to refer to that as real-side fiscal spending. I don’t think so. The point is, everyone threw at the problem massive amounts of resources in an effort to get their economies going. Some countries succeeded at what they said they would do; others failed. Whether success or failure ensues, however, someone will always have to pay for that stimulus. I certainly agree with that. Loans go bad when they don’t pay off – but racking up US$5tn worth of growth over 5 years is a peculiar way of going bad.
Moreover, that payback is already what it has to be; it doesn’t suddenly decline in size, or become something noble and to-be-admired should the stimulus instead fail. I don’t think many US or UK or EU taxpayers — given the state of those economies and in light of the government stimulus expended in those economies immediately post-2008 — are right now thinking, “That poor Chinese taxpayer — he only got $US 4500bn growth out of all that effort. Thank goodness that’s not us. (Wait, did we in the West post-2008 hand over a lot of money to financial institutions too?!)”