China and a US Recession
But would the CCP be able to implement the solutions named below quickly enough to stem internal revolt?
A sharp slowdown or contraction of real personal consumption expenditure growth in the US in 2007 will lead to much slower economic growth in China. China's export growth could be flat or even negative while investment growth could be cut in half. In addition, rationalization in China's export sector could lead to much higher urban unemployment, especially among China's migrant workforce. This could heighten already increasing social instability, further undermining private consumption growth and economic growth in China.
A US economic downturn next year will undoubtedly have a strong negative impact on China's economy. However, this impact could be mitigated by the government's marshaling of China's considerable resources, including the country's nearly US$1 trillion of foreign exchange reserves. In addition to these reserves, China has enormous fiscal resources that it can employ to boost the economy either directly or indirectly through the country's massive state-owned banking system - not exactly music to the ears of foreign investors who have poured money into China's banks.
Though dependent on consumer demand in the United States, China's economy could easily withstand a US economic recession because of its vast resources and its ability to extend these resources through the still-dominant state-owned economic structures. As a result, slowing US economic growth does not imply a significant reversal in global commodity prices, especially oil prices. Even if economic growth in China slows to 5% in 2007, demand for energy and crude oil in China will remain quite strong.