Macroeconomic Implications and China

Abstract

Before the subprime crisis, there was hype among western analysts about China decoupling from the economic growth trend of the developed world. Many investment bank economists were pushing the idea of China becoming an independent economic power that could grow organically and at the same time propel global economic growth. In the early stage of the subprime crisis, many people even thought that China could replace the USA as the world growth driver and save the global economy from imploding under the global credit crisis. These thoughts are naïve. Globalisation and China’s internal growth imbalances clearly indicate that there had been no decoupling of Chinese growth and that China could not save the world at this stage of economic development. The subprime crisis has, meanwhile, offered valuable lessons for China’s economic policies and for understanding long-term risks in the Chinese banking sector.