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A hard call by Roubini, maybe

Comments on Andrew Burrell and David Uren “'Hard landing' coming in China, warns Nouriel Roubini”, 26/10/2011, http://www.theaustralian.com.au/business/economics/hard-landing-coming-in-china-warns-nouriel-roubini/story-e6frg926-1226176718241

China is in a much better position to weather another downturn in many of the world's advanced economies.

There are a number of reasons for such optimism about the Chinese economy. Firstly, its central government debt is much more manageable compared to many of the advanced economies.

Secondly, the Chinese government has a higher degree of control of its economy, largely as a legacy of its incomplete transition from its past planned economy.

Thirdly, it's domestic demand is large and there is considerable room to invest in infrastructure and housing due to its urbanisation process.

Fourthly, while another downturn in the advanced economies would reduce their aggregate external demand for each of them, it does not necessarily mean China's exports to them as a whole will be reduced to the same degree. To the contrary, China's exports may replace some of the trade between those economies including some of their domestic outputs.

So if one really understands the Chinese economy and its dynamics including its experience from the last GFC, one will certainly be optimistic about its growth over the next decade or so.

However, a good growth may not necessarily mean more growth in demand for raw materials over the next decade at the same speed as in the past decade or so.

The "material intensity" of the Chinese economy is likely to fall gradually at first and then more rapidly in a few years' time.
That is determined simply by its stage of economic development.

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