Duncan’s Economic Blog

China & the US

Posted in Uncategorized by duncanseconomicblog on July 15, 2009

Three days in a row of China stuff, still it’s a big issue.

 

Robert Peston weighs in today.

Mr Zhou is clear that allowing America to live beyond its means is profoundly unhealthy for the global economy in the long term.

As he said: “over the long run, large capital inflows are not in its best interest of making adjustments to its economic growth model”.

Or to put it another way, the US public, private and financial sectors all have to reduce their indebtedness: Americans have to save more.

But there is huge self-interest on the part of the Chinese in not forcing America to go cold turkey – in breaking its borrowing addiction – too quickly. China’s exporters, squeezed savagely over the past year by the global recession, would hardly relish another lurch downward in US demand for their stuff.

The interdependence of China’s great production machine and America’s army of consumers remains the great fact of the global economy.

Worth reading along side the analysis from Micheal Pettis.

 

 

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