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China collapse scenario good for no one

Editor: zhenglimin 丨Xinhua

01-15-2017 10:22 BJT

BEIJING, Jan. 14 (Xinhua) -- What would the future of the world economy be if China's growth were to plunge? It is a scenario many China bears have predicted.

With both official and private figures released this month pointing to a stronger economy, they will probably be disappointed again.

Still, a "China collapse" would be good for no one, given the weight of the country's economy.

Ever since the global financial crisis, China has been the main engine and stabilizer of global economic growth and trade recovery. Data from the International Monetary Fund (IMF) showed that China contributed more than a quarter of global growth each year between 2009 and 2015.

Despite a protracted slowdown, China's contribution to world growth in 2016 is again poised to top that of all other countries, even exceeding the figure for all developed economies combined.

The IMF has projected China's growth to be 6.6 percent with global growth at 3.1 percent in 2016. Taking into account China's 17.3-percent share of the global economy in 2015, the country would contribute about 1.1 percentage points -- more than a third -- of global economic growth for 2016.

However, China's growth last year appears set to hit 6.7 percent, the same as in the first three quarters of 2016 and beating the IMF forecast. If that rate is achieved, China will account for 1.2 percentage points of world growth.

Meanwhile, the contribution of the United States will only be about 0.3 percentage point, and the combined contribution from the developed world will be just 0.8 percentage point.

Citing data from the World Bank, the National Bureau of Statistics said Friday in an article that China's contribution to world growth in 2016 would be about a third, also the largest among all countries.

Facing pressures from a weak global recovery, rising trade protectionism, domestic debt overhang and excess capacity, will China's growth plunge to the low single digits, or even into negative territory?

U.S. economist Stephen Roach has said no.

"China has the strategy, wherewithal and commitment to achieve a dramatic structural transformation into a services-based consumer society while dodging daunting cyclical headwinds," according to Roach.

A U.S. billionaire investor predicted last year that "a hard landing is practically unavoidable." A foreign bank forecast China's GDP growth to nosedive to 3 percent, while a think tank expected China's economy to crash. Clearly, they were all wrong.

But what if the China bears were right? Without China's 2016 growth, what would have happened to the world economy?

The immediate effect would be the vanishing of more than a third of global growth, dragging the IMF's 3.1-percent estimate for 2016 to 1.9 percent, even below the threshold associated with a global recession.

The damage would not stop there. Since opening its economy, China has become closely entangled with the rest of the world in terms of trade and investment.

In its October World Economic Outlook report, the IMF said global spillover from China's slowdown would add to the direct effects, which analysts said could further reduce global growth to 1.6 percent, a rate rarely seen in recent decades and a nightmare for many countries.

A post-crisis world economy without Chinese growth would face grave trouble, so China bears need to be careful what they wish for, Roach has argued.

Given its size and pace, China's economy is too important to be ignored.

The country aims to hit annual growth of more than 6.5 percent and steer the economy on a quality and sustainable path in 2016-2020, and the world can count on China to help sustain global recovery and growth beyond that.

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