Virtual China

It’s one of the wonderful things about blogs.  You can find really smart people who are blogging their thoughts rather than writing super long, boring reports.  And if those people are economists, how great is that?  If you are NOT someone who likes to spend much time on economic reading, you might enjoy the WorldBank’s East Asia and Pacific Newsletter, which comes every now and then to your email Inbox and delivers the contents of the bank’s’ East Asia and Pacific blog.

Today there’s a piece from the World Bank’s Country Director for China and Mongolia, David Dollar, on possible scenarios for the rest of the year in China.  There are more jobs in places outside of the southeast, which is a good thing; but food costs too much, and a US recession and more expensive yuan could hurt Chinese exports. The Chinese government is trying to channel FDI into non-export-oriented projects.

Dollar’s most recent post is on a meeting he had with a group of economists in which they discussed possible optimist and pessimistic scenarios for what is happening in China right now, particularly the shift from exports to domestic consumption as a form of economic growth.  He writes:

The pessimistic scenario is that there is a sharp drop in investment as 2008 develops as firms and banks become aware that future profits in exports and industry more generally are not so promising.  Banks discover that some of the loans they have made in the boom years are not being serviced.  If these sectoral problems feed into generalized pessimism and consumer caution, then the overall slowdown could be quite sharp.

Another World Bank economist, Luis Kuijs, responds in a long comment with a slightly different opinion:

The expected slowdown of exports later this year will have an impact on domestic demand. I would think this impact will mainly be via an adjustment of investment plans of businesses in the tradable sector. Employment in the export sector will be hit. However, the importance of the export sector for job creation should not be exaggerated. In recent years, the “non tradable” sector (services and the part of industry catering to domestic demand) has created many more jobs than the export sector.