For a global economy already jittery over sovereign debt risk in the U.S. and Europe, last week’s 500-point freefall in the Dow Jones Industrial Average helped resurrect fears of a dreaded double-dip recession. Thedowngrade of U.S. debt by Standard & Poor’s on Friday has only fueled those fears further.
The first dip would have been far more frightening had it not been for China, whose $586 billion stimulus plan in 2008 kept the country’s economy growing briskly and helped ensure the rest of the world didn’t grind to a halt. Can China be counted on to do the same in the event of a second slide?
According to University of California, Berkeley economist Barry Eichengreen, the answer is no. Asia should be “very” afraid of a double-dip recession, Mr. Eichengreen writes at East Asia Forum, adding that the world’s second-largest economy isn’t where it was in 2008:
Mr. Eichengreen would appear to agree with Heard on the Street’s Tom Orlik, who wrote in a column last week that not only had China’s banking debt ballooned to nearly 180% of GDP in 2010, but that the country has recently appeared to be getting less for what it spends.
If China sees exports plummet again, Mr. Eichengreen writes, the government would be in no position to compensate for the loss with domestic spending: “The implications for other economies that sell parts, components and, above all, raw materials to China would not be pretty.”
A reason, perhaps, to take Beijing’s recent lashing out at Washington over the handling of the U.S. debt problem as more than just the grumblings of an unhappy creditor.
– Josh Chin. Follow him on Twitter @joshchin