China’s Recovery and Global Growth

CAMBRIDGE – China is likely to be the first of the major economies to recover from the current global downturn. Its pace of expansion may not reach the double-digit rates of recent years, but China in 2010 will probably grow more rapidly than any country in Europe or in the western hemisphere.

But, even as China recovers from its current slowdown, it is not likely to provide a similar boost to all of its trading partners. That lack of spillover will reflect the recovery’s focus on expansion of domestic demand.

There is no doubt that China currently is suffering from the global collapse in demand for a wide range of manufactured products. The sharp drop in retail sales in the United States and Europe means fewer orders for the goods produced in Chinese factories.

And, while the Chinese yuan has remained more or less unchanged relative to the US dollar in the past year, the dollar’s sharp appreciation relative to the euro and other currencies caused the overall trade-weighted value of the yuan to rise. This further depressed Chinese exports.