China:we can still hope

A  popular theory among local economists, before the great crash, was that rising living standards in China and India would cushion the impact of any global downturn on Australia.

The idea, then, was that most of the export driven demand that might be lost, in  those  countries, would be replaced by domestic demand, designed to meet rising living standards.

So those two countries, in particular, would continue to buy Australia’s iron ore, coal, wheat and meat.

Understandably, little has been heard of that theory, since Lehman Brothers collapsed last September.

One expert, though, believes that idea might have been abandoned too quickly, at least in relation to China.

“I don’t know about India,” Vikram Nehru, the World Bank’s chief economist for the East Asia Region, told Private Briefing.

However, Mr Nehru, said the Chinese government’s ability to influence all sections and regions in that vast  country must not be underestimated.

He said the great thing about China was the ability of the Chinese government to substitute domestic demand growth for lost export demand growth.

Mr Nehru said some analysts now expect the   Chinese economy to resume  expansion later this year.

That had yet to be seen.

But the Chinese government could quickly stimulate demand in housing and other non-tradable areas, such as housing and  infrastructure development.

He said millions of Chinese people were already making their way back to their home villages, as a result of the global economic crisis.

And the Chinese government is well aware of the dislocation costs this involves.

Mr Nehru also said that most countries in the East Asia region had been well prepared for the global economic downturn, when it arrived.

Their bankers had been lending prudently.

So their banking systems were strong.

Mr Nehru  also noted that  many  East Asian countries are still recording growth. But he admitted that World Bank growth estimates for the region, which are  now being revised, will probably be cut, when they are released in March.

However, he remains cautiously optimistic, even predicting that  East Asian countries could help the world recover from the present crisis,  if it does not go on too long.

If the crisis is extended, though, the results would be less predictable, Mr Nehru said.