all the prosperity in china

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    Daft little PM is dealing us out of Asia.

    China looks set to become the locomotive of the world's economic recovery, explains Victor Keegan.

    Thursday April 17, 2003

    When economists talk about the global slowdown, they do not mean what they say. What they really mean is the economic slowdown in the west - with Japan usually thrown in as an honorary western economy.
    If they were to travel to east Asia they would suddenly find themselves in the middle of a boom, notwithstanding the undoubted debilitating effects of the Sars virus.

    Hong Kong, Malaysia, the Philippines and Thailand are all expanding at between 5% and 6% while South Korea (the broadband centre of the world) is steaming ahead at 6.8%. And these are just the relative failures.

    The big success story is China, the most populated country in the world, which has long taken over the role of being the prime engine of east Asian growth from Japan. Figures released this week show that China's economy was expanding at more than 9% (annualised rate) in the first quarter of the year.

    That compares with growth this year of only 0.5% in Germany (which is supposed to be Europe's prime engine of growth) and 4.3% in Russia.

    The former Soviet empire could be forgiven for wondering whether it would have been better off going for a controlled transition to a market economy as China has done, rather than the Big Bang it adopted with western encouragement.

    It would almost certainly have done better if it had - but that is not the main reason for China's spectacular success. It is a much more homogenous country than Russia and has a strong entrepreneurial culture that Russia lacks.

    There is no particular reason to suppose that Chinese economic growth is running out of steam. The country is only just beginning to satisfy the underlying demand for the consumer goods that the west has taken for granted.

    For instance car sales expanded by an awesome 56% last year to 1.1 million units - but this is small beer for a country with a population of 1.3 billion. China is firing on all cylinders: retail sales are rising by around 10%, exports are booming and foreign direct investment is up by 57% to $13bn (£8.25bn).

    The interesting thing is that China is now a much more open economy than it was, thanks mainly to its membership of the World Trade Organisation and the tariff cuts that have gone with it.

    Although exports have been growing by comfortably over 20% during the past few years, imports have soared at an annual rate of over 40% in the latest half-year. This makes China one of the few big economies helping to boost world trade in a positive manner.

    It ought also to be mildly reassuring to the rest of the world. There are - very real - fears that China could acquire a stranglehold on the world's manufacturing capacity because of its formidable combination of high skills and low labour costs.

    The lesson of this year's figures is that the more prosperous China becomes the more it wants to buy goods and services from the rest of the world. The health of east Asia's economy used to be a function of the state of the US to which it supplies so many final goods and components.

    That is still true to an extent. But China has now emerged as a dynamic economy in its own right capable of energising the entire Pacific Rim. It won't be long before western countries start looking to China, as they have to the US, Europe and Japan, to become the locomotive of world recovery. With the rest of the world economy in the state it is in, that moment can't happen too soon.

    · Victor Keegan is editor of Guardian Online

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