China and the US Recession

China...what is going on in view of the US Recession?

Well, first of all, things are not the same as they were a few years ago in China. Yes, the Olympics were very impressive, and yes, most of what we bought during this Christmas season was still made in China, but the world economic condition is having some significant effects on the overall Chinese economy.

China's rapid growth and burgeoning economic problems are also highlighting the close links between the American and Chinese economies. In the 1980's and 90's, China's manufacturing prowess drove down the cost of most products and spurred demand in the United States for everything from toys to computers, according to Professor Merle Goldman at Boston University.

Buoyed by ample credit for American consumers, the total value of Chinese exports to the US grew nine fold between 1995 and 2007, when it reached $233 billion. But China's rapid growth as disproportionately benefited its wealthiest people, leaving many Chinese unable to afford the products its factories export and making China particularly vulnerable to the US recession. And, last month the World Bank cut its 2009 growth forecast for China from 9.2% to 7.5%.

Since the beginning of this year, declining demand in the US and Europe, as well as a string of safety recalls of Chinese-made products, have pushed more than 1000 factories in one area of Dongguan, China into bankruptcy with some 2 million people out of jobs. Not a good picture.

All of this is to say that when we read about our national economy and the recession that is now part of the daily media, we realize that we are indeed in a World Economy. What happens in California and Connecticut has a rippling effect in Beijing and Bangladesh. Such is the nature of the flat world of 2009.

Most of the above was my interpretation of an article on the economy in the Atlanta Journal Constitution, which I read on a recent flight in and out of Atlanta, GA. Credits for the research can be given to Professor Goldman of Boston, along with Professor Deng Yupeng at the Dongguan Technological University in China.