Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Bloomberg Customers

American Recession, Chinese Depression? Parallels to 1929

Posted by: Michael Mandel on January 12

Is China today like the U.S. in 1929?

This morning brings reports that U.S. imports plummeted in November.Since August non-petroleum imports, adjusted for inflation, are down 10% with no sign yet of a bottom.

At the same time, Chinese exports are starting to fall. According to this morning’s report,

Exports were down 9 percent from a year earlier in yuan — a jolting deceleration for a country where exports were still growing at an annual rate of nearly 30 percent in the summer of 2007.

The odds are that this decline in Chinese exports will continue. What does this mean for China’s economy?

Here’s one clue. If we look back at the Great Depression, we see that the U.S. was hit harder than virtually any other European or Asian country. For example, between 1929 and 1932, industrial production plunged by 45% in the U.S., compared to 41% in Germany, 26% in France, and 11% in Britain (see table 1 here )

Measures of real GDP shows an even bigger disparity between the U.S. and other countries in the Great Depression.

Where the Great Depression Hit the Hardest
Change in Real GDP, 1929-1933
United States -29%
Germany -10%
France -9%
Italy -3%
United Kingdom -2%
Japan 11%
Data: Angus Maddison

The plunge in U.S. real GDP from 1929 to 1933 was far bigger than comparable countries, at least according to data from Angus Maddison.

Why the disparity? There’s all sorts of reasons, relating to monetary policy and other factors. But in part, the U.S. was hit harder because it was a ‘trade surplus’ country—that is, a net exporter of goods. By contrast, Great Britain (for example) was running a sizable merchandise trade deficit in 1929, so cutbacks in spending would be felt more outside of Britain.

The question now is whether China, and more generally the trade surplus countries of East Asia, are going to play the role of the U.S., as acted out in 1929 and the years that followed. Already Korean and Taiwan exports have been collapsing (see Brad Setser here)

Michael Pettis, a professor at Peking University’s Guanghua School of Management, has been arguing the position that trade surplus countries such as China are going to be hit hard. He writes here:

We are now in the second stage of the crisis, in which trade-surplus countries must adjust after the forced adjustment in trade deficit countries. However, the US is so much larger than China, and it is adjusting so rapidly, there’s a real risk that the Chinese economy will be overwhelmed. Policymakers, especially in the US and China, must ensure that this adjustment takes place in the least disruptive way possible. This requires that as the major trade deficit and trade surplus countries, the US and China must coordinate fiscal and monetary policy so as to slow the process down.

I think there’s a very good chance that by this time next year, the economic damage in China will be worse than in the U.S.

TrackBack URL for this entry:

Reader Comments

Bull Run

January 13, 2009 11:04 AM

Good point, and probably right on the money. A point to consider is that both economies, the US prior to 29 and the present Chinese economy have taken similar paths. Huge migration of workers from farm life to factory employment in large cities, that were later unemployed. The advent of the US stock market in 20's and the present day Chinese stock market, that collpased and caused great hardship on it's citizens.No initial social system to aid the unemployed. One of the reasons that the Chinese have such a high savings rate. I'm guessing that China will soon implement one as this recession worsens.China is taking steps similar to the Rosevelt administration that spent huge sums on public works, to keep people employed. I think that in this recseeion the Chinese economy will be facing a huge defaltionary cycle, while the US will be facing the opposite, a huge inflationary recession.

Not convincing

January 13, 2009 11:50 AM

Not convincing. You stated that "there’s all sorts of reasons, relating to monetary policy and other factors" to explain why US declined more than other countries in 1929 and that only “in part, the U.S. was hit harder because it was a ‘trade surplus’ country”. For you to draw the conclusion you had for China, you should prove that the “in part” reason was a sufficient reason, not just one of the reasons. Is this one of the basics of logics?


January 13, 2009 12:00 PM

In that time period, international trade was only about 7% of the economy, so a big decline in that trade didn't mean very much to the total economy. Deflation was by far the biggest cause of the Great Depression. By contrast, the Chinese economy has been built largely to provide goods to the US market, and they will hurt a lot with consumer purchases falling by 25% or more.


January 13, 2009 12:06 PM

there are some different views here, i believe a strong and cash rich government will bring china out of recession easily, it has tracking record


January 13, 2009 12:19 PM

While the similarity between the 29's USA and the present China is striking, the country dynamics are somewhat different.China has the advantage of being able to move faster on its fiscal changes than US which is in a mess budgetary-wise. Monetary policy changes cannot be resolved alone by the US and China without the inclusion of other countries. So to conclude that the economic damage in China will be worse than in the US is a big quantum leap on the author's presuppositions.


January 13, 2009 12:24 PM

China's growth has been a direct result of the ARTIFICIAL ECONOMY in the USA over the last several years! The U.S. economy was the CATALYST for China's economy! Now that the U.S. economy has been EXPOSED for what is really was, and is, the rest of the world, especially CHINA, will suffer and pay the consequences!!! Those ARM's (Adjustable Rate Mortgages) have done DAMAGE that few ever thought possible! We can THANK the FED, and Alan Greenspan, for lowering the rate to 1% back in 2003 which spurred the ARTIFICIAL ECONOMY in the USA! Thanks, Alan & Company.


January 13, 2009 12:28 PM

looking at newsweeks ariticle and BW's, I feel one is Mecerdes and other is Hundai. Hope BW has more high level articles as Newsweek's. This one is just like a kid's, I am really sorry that I have to say that


January 13, 2009 12:46 PM

Having traveled to China numerous times over the last 15 years, I have seen tremendous transformation there. They have developed a "middle class" where there virtually was none before. The slowdown on exports will have it's pressure on their growth, but China is much more resilient then the US when it comes to restarting the economy. Slowdowns don't last forever, and what is probably happening is pent-up demand that will probably explode. When the American consumer gets his personal balance sheet back in order, they'll start buying again. Whomever can get to the table first with the product will get the orders.


January 13, 2009 12:59 PM

The whole China trade has been a disaster for the middle class worker in the US. Good riddance to this anomaly.


January 13, 2009 01:15 PM

Is China today like the US in 1929? Abolutely not. In 1929, the private sector share of US GDP was close to 90 percent and the government was able to respond to the Great Depression and World War II through massive stimulus (albeit in fits and starts over the course of many years). At its peak during World War II, the government share of US GDP was roughly 40 percent. It has averaged around 20 percent of GDP for several decades.

By contrast, the government sector share of Chinese GDP is probably already around 40 percent. China is already massively overstimulated and will require even more government stimulation just to maintain its target growth rate of 7 to 8 percent during the recession. With declining exports and domestic demand and no social safety net to speak of, even a crude back-of-the-envelope calcualtion suggests annual stimulation of at least $500 to $600 billion just to keep the country from imploding politically (this is only partly offset by the announced stimulus plan). Bottom line: China will be in a world of hurt 12 months from now and desperately needs to increase its domestic demand in order to offset declining exports. More government stimulation is not a long-term substitute to replacing exported goods.


January 13, 2009 01:18 PM

in 1929, european nations had not yet fully recovered from their WW1 destruction. thus these nations had more pent up demand. japan was still developing in that era too. in the current fiasco, it makes sense for developing nations to be LESS affected, as stimulus programs (such as capital expenditures) will actually pay off, as opposed to bridges to nowhere in the stagnant developed economies. of course, these articles are dependent on spin, and there are people who will gladly lap it up.


January 13, 2009 01:22 PM

What can I say? Those countries who practice Merchantilism get burned sooner or later. >:)


January 13, 2009 01:54 PM

What's more relevant would be to consider the strength of an economy after the depression. The US emerged as a winner after 1929...the same would apply to China this time?


January 13, 2009 01:55 PM

Interesting point. The issue also directly bears on the approach of bailout in the U.S. Over reliance on a 1930s model of policy action and risk might overshoot on the federal stimulus and debt burden by not taking into account the offset from decline in imports compared to prior periods. The energy arbitrage folks had better consider this prospect also. China troubles might set back commodity markets more than current market bets indicate.

silverio narvaez

January 13, 2009 02:12 PM

no comments


January 13, 2009 02:30 PM

"I think there’s a very good chance that by this time next year, the economic damage in China will be worse than in the U.S. "

Let's hope that this article is still available one year from now and see whether the Chinese economy or the American economy is in ruin!

The USA is in the eye of the financial and real state mortgage meltdown storm while China is in the periphery of this financial storm! Chinese economy and many Asian economy will be affected to varying degree but their damage level should not be worse than those countries at the epicenter of this financial meltdown earthquake!
I wonder if this Michael Mandel writer will be around on BW or whether BW will go bankrupt one year from now due to its poor quality report!


January 13, 2009 02:45 PM

What's more relevant would be to consider the strength of an economy after the depression. The US emerged as a winner after 1929...the same would apply to China this time?

The US economy largely recovered because of wartime spending, by the US and other governments who bought US equipment. The post-war US recovery was also fueled in part by the international situation - every industrial base but America's was destroyed or damaged. The vast amounts of concrete, bulldozers, industrial steel, etc required to rebuild the world's economies largely came from the US. We got lucky last time.


January 13, 2009 03:16 PM

The other concern as it relates to China is if they do have a major depression then who will buy US debt if the Chinese can't pick up the slack? The answer would be the Saudi's and other oil rich countries. Do we want to be fully indebted to those folks?


January 13, 2009 03:55 PM

The two pillars that sustain China's rocketing economy during the past ten years are export and domestic demand. This crisis in the US is really a blow to China's export, resulting lots of small businesses suffering or even bankrupting. Right now domestic demand is vital to China's economy, and the Chinese government did put out a 4-trillion yuan stimulus package last November, to boost domestic demand. If China fails to sustain the level of consumption, the glamorous increase of its economy would likely to come to an end.


January 13, 2009 04:05 PM

What do we buy from China that we really, really need? Food, nope. Shelter, nope. Clothing, nope. Cars, nope. Healthcare, nope. Water, nope.
Fuel, nope. Capital equipment, nope. Thus their problem, if you ask or don't ask me.


January 13, 2009 04:53 PM

It is true that a trade surplus country will be further disadvantaged at an economic downturn, for not only domestic but international demand would decline. However China is essentially different in its position of fiscal and monetary policies, and its ability to carry out the policies (remember it can implement government projects without going through the political consensus) compared with US in 1929.


January 13, 2009 04:54 PM

I agree with RP. The U.S. got luckly last time. After the next war (which will be nuclear, off course),there will be no industrial capacity in the U.S., Europe or China left to rebuild everything.


January 13, 2009 05:23 PM

China will not get hit hard with the down turn because they actually goods unlike the US who make debt. PETER SCHIFF 101


January 13, 2009 05:24 PM

I can't believe BW would put this sort of article on its front page. There is a total lack of data, reasoning and cohesion. Simply correlate any pair of data points you can make an assertion. But that's not how serious research is done.


January 13, 2009 06:06 PM

basically what the author is saying is that since america has been a loser for a long time, this worldwide crisis, which has been primary caused by it to begin with, will not do as much damage as it will to china. and the reason is, china has been running trade surpluses and was no where close to being as big of a loser as america.

i'd say, good job! what a great article. i'm sure the author and businessweek meant to publish (yet) another article bad-mouthing china yet the conclusion is just the opposite.


January 13, 2009 06:30 PM

January 13, 2009 03:16 PM

The other concern as it relates to China is if they do have a major depression then who will buy US debt if the Chinese can't pick up the slack? The answer would be the Saudi's and other oil rich countries. Do we want to be fully indebted to those folks?

I guess that there is always the printing press to keep printing trillions and trillions of dollar if not one buy American Bond or T-Bill or raise tax to pay the "bail out"!!


January 13, 2009 06:46 PM

China will face huge problems. They have lost their markets and it will be difficult to rebuild them. However the yuan is undervalued rather than overvalued. What made the depression here so deep was trying to keep the dollar overvalued. The US also has problems which while less severe in themselves are difficult to address democratically. While we discuss what the most effective stimulus is, it was not the stimulus of the war that got us out of the depression but the resulting redistribution of wealth. I only hope it can be achieved without another war.


January 13, 2009 07:10 PM

Maybe it is time for the Chinese to spend some of the approx 1 trillion dollars that they are hoarding. We have lots of munitions, secret military projects and the most high-tech military equipment in the world, for sale with a multi-billion dollar price tag. (Of course, why buy it when Clinton will tell you for free?) When the Chinese buy from America, then we will have money to buy from China again. Also, like it or not, China is a low-cost manufacturing powerhouse. There are many areas of the world that do not have access to manufactured consumer goods (parts of South America, most of Africa, neighbors of China)--and China can fill those needs, cheaply. We will probably see an (export) automotive industry in China in the near future as well.


January 13, 2009 07:16 PM

Great article! It's about time someone hi-lighted this real potential for China. History has shown that export focused economies are risky one trick ponies. Japan has still not learned this lesson. Hopefully the Chinese will consider retooling their factories for a home-grown emerging market. This potential would place them approximately where the US was in the 1950's. Let's see if their central planners get it?


January 13, 2009 07:40 PM

January 13, 2009 12:28 PM
looking at newsweeks ariticle and BW's, I feel one is Mecerdes and other is Hundai. Hope BW has more high level articles as Newsweek's. This one is just like a kid's, I am really sorry that I have to say that


Exxco, I can't agree with you more. BW, kinda like high school kids, turns in the essays right before the deadline.


January 13, 2009 07:43 PM

If the Chinese economy goes south then they will reduce their bond holdings in the US and that is going to make the US deficit and currency a much bigger problem. How is the Obamamessiah going to cope with that? How is the government debt and stimulus going to be funded if new bonds are not being bought and existing ones are being sold?

Alan Bond

January 13, 2009 08:06 PM

Stop instigate fears on China! Things in China are better than anywhere in the world.

China today is totally different from USA in 1929. USA in 1929 had no government intervenation on the economy. One fails, the whole economy fails.


January 13, 2009 08:10 PM

Who cares China. We are in deep s*** ourselves.


January 13, 2009 08:19 PM

The health of Chinese economy can be seen indirectly from import figures, not based on export figures. Since import figures indicate internal economic activities. Unfortunately imports had fallen too deep in China. After adjusting oil prices, it is still very high. This indicates how vulnerable Chinese domestic economic activity is!


January 13, 2009 08:29 PM

In an often overlooked aspect of Chinese economy in the west is that China's vast rural housing market and local services economy are not counted in the GDP data. Thus the actual GDP of China is probably much larger than the current official data. Also please keeping in mind that there are over 100 cities in China that their populations are over 1 million (that's already equal to the whole US population).

The title and context of this paper are grossly misleading and overly speculative. Let's all hope that the situation will not get worse in both countries and we will all have employment.


January 13, 2009 08:36 PM

Good analysis.. I was actually just thinking the same thing - last week, I mentioned to my friend that export countries like Japan and China will probably suffer more in the long run than the US will. Remember, Japan couldn't export their way out of their 10 year recession.. Mike @4:05pm is right.. this idea is somewhat counter intuitive, but I think it's correct.

Sarabjit Mann

January 13, 2009 09:00 PM

Is not stimulus packages around the world would help Chinese economy only? I suspect this time even Keynesian Theory will also fail!
For example , everytime it rains on the land , water goes to Ocean!

In the end extra checks are being spent at "China Mart" , sorry for typing mistake , it is Wal Mart!

I wish in the 1929, countries which import US products would have launched stimulus packages in the way ,launched now!

Mike Reardon

January 13, 2009 09:25 PM

We are a service and retail nation and we’re now putting in place a more restrictive bank system that will not hold the same massive leverage and risk it held before.

We will still be looking for efficiencies and that is why we are not going far from trade with Asia.

China would get less return from trading into rest of the world than it got from its largest client, but..

China can take new partners into the liquidity swap it had with the US and that will broaden the reach of Chinese products. And China can do trade agreements with commodity markets that the a capitalist US can’t do, and still hold a capitalist side to the other trade within that same nation.

They may not go there but remember the US ended as the only world provider of products when the wars ended.


January 13, 2009 09:25 PM

Interesting thought and some good comments. The following thoughts occur to me:
The US in 1929 was a country dominated by an ideology that emphasised private ownership and individual freedom.
China's primary ideology favours state ownership and the sacrifice of the individual to the collective.
The US population in 1929 was around 120 million.
China's population is around 1.3 billion.
In 1929 the US was exporting to countries at a similar level of ecomomic development.
China has been exporting to countries with a higher level of economic development.
I suspect the diffences might make historical comparisons difficult.


January 13, 2009 10:59 PM

That's why China is stimulating domestic demand.
Let's wait and see.


January 14, 2009 12:27 AM

China will not be in depression. The article forgot that technically China is still a socialist system. It might become poorer even if its export is damaged, the government influence on the economy is very big and it can stop its economy free fall into depression. That is the difference between total free market of US and government controlled free market of China.


January 14, 2009 01:06 AM

Although the trade surpluses seem to be similiar, present-day China is in many aspects absolutely different from America in the 1920s and 1930s. It has a much more effective macro-economic control system which has been in place long before the world financial crisis. Government decisions to bail out the economy are much quicker than USA then and now. Besides, saving rate is much higher, give both the government and the people better potential to fight economic downturns. Taking these factors into consideration, I feel the author is too simplistic by basing his judgment on a single factor.
What is more, China had already planned to shift its economy growth from depending more on export to more on domestic consumption. The financial crisis, though a challenge in the short term, will also strengthen decision-makers' determination to push forward the shift, the success of which means a much healthier economy and much brighter future.


January 14, 2009 01:28 AM

All these articles from the West, trying to make real a wish that China will fall because the States is in moral, financial and political trouble. It simply stems from envy and jealousy.

Where is the real research? The in-depth knowledge and data about China's economy and fiscal policies to back this up? Just a continuous stream of articles predicting China's fall.

Because it would be unbearable that an Asian country can be a superpower, that China once treated by the West as a pariah dog can progress so fast and do so well. So there has to be something wrong with the economy. It is inflated. the figures are propaganda.

Truth is, Asia is as Asia does. And our systems work better. Did our banks collapse when America's did? Nope.

The economy slowed as did the world's but nowhere near the state it is in in America.


January 14, 2009 04:08 AM

Mmmm ... Maybe most of you are not aware that the US are actually NOT the center of the world. Chinese exports are bigger to Europe than to the US. Europe is a bigger economy than the US. It is a global slowdown, in a globalized economy, not like 1929. Of course, the US are more affected because the population has no cash in the bank. In Europe, people spare 15% of income and under 0% in the US.


January 14, 2009 04:48 AM

Perhaps it would be better to compare China with Soviet Russia rather than the USA. I think there are good arguments to suggest that power comes from prosperity and prosperity comes from free markets and free markets require free people. When the public voice of China clamours in defence of the freedom of Chinese people then I think China will be ready to take its place as a superpower. I am not an American but I am very glad to have America as both a superpower and a champion of freedom. I'll even forgive the odd erroneous and foolish use of military power on the principle that the mugs who do it will eventually be found out and thrown out.


January 14, 2009 12:15 PM

Shall we push analogies .... and why not comparing Mr V Put. to Ad Hit. and then comes the war after depression as we are seeing agitation of free people all around the world ?


January 14, 2009 06:17 PM

If China is going to be in serious trouble, then the US will be even worse off, since we are dependent on them to finance our enormous spending deficits.

Mike Mandel

January 14, 2009 07:34 PM

I take the comments seriously, especially the people who stress the difference between the U.S. in 1929 and China today. Here are two thoughts. First, remember that even though the U.S. was hit hard by the Depression, it ended up as the strongest economy in the world by 1945 (let's hope we don't have another world war!). So even though Chinese exports have dropped, so far it is gaining global market share against other countries such as Taiwan, Korea, and Japan, because their export drops are much bigger.

The second point is that economic swings are bigger than we think, in China as well as in the U.S. It's a mistake to believe that booms are not followed by busts--that's the capitalist way.


January 14, 2009 08:55 PM

To Mr. Mandel

1-Do you know for a fact what % of the Chinese GDP depend on export? 30% 60% or 99%?

2-What % of Chinese export is to the USA, % to European Union and % to the rest of the world?

3-China import from the rest of the world, so do you know the amount in dollar of import from the USA?

4-Also, the percentage of import from each regions such as % import from the European Union and % from the rest of the world?

5-What percentage of the Chinese economy is from internal consumption?

I believe that you must have done a lot of serious research to come to such as bold prediction that we have the right to know how you based such as conclusion.

In the past, it was common knowledge that Chinese financial system was rotten to the cored with corruption and bad loan, while American financial system was the premier financial system. Well, now we pretty much know which system is rotten to the core and full of non-performing loan.
Thank you if you could answer the above questions in how you based your conclusion.


January 14, 2009 10:03 PM

I've always said modern Shanghai is F. Scott Fitgerald's The Great Gatsby. Someone quickly film an adaptation of the novel in modern Shanghai.

To Mandel

January 15, 2009 01:32 AM

Mr. Mandel

How do you based the notion China will suffer worse economic crisis if the center of the financial crisis is in the USA! Real state is falling throughout the USA, financial meltdown leading to credit freeze, lose of job in the non-farm (manufacturing, retails, financial and more) and it will just get worse!

Are you assuming that Chinese export rely heavily on the USA?

Well, please answer the following questions:

1-What percentage of Chinese GDP depend on export? I am not talking about wild guess but exact figure of Chinese GDP that depend on export!
2-Does the USA and Europe absorb what percentage of Chinese export? Again, tell us if the USA and Europe take 80% or 90% of Chinese export!
3-What is Chinese total import in dollar and its composition of its import and the quantity in dollar from the USA and Europe!

There is this believe that China rely heavily on export to sustain its economy and I wonder if there are solid facts to back such as belief.
Before, the financial crisis in the USA, it was very common to assume Chinese banking and financial system to be full of bad loan and corruption but after the financial crisis in the USA and Europe, it was obvious which financial system is rotten to the core! Please answer these above questions


January 15, 2009 06:48 AM

"the present day Chinese stock market, that collpased and caused great hardship on it's citizens"

Most Chinese are dirt poor, they don't own any stocks, Chinese or American.

Mike Mandel

January 15, 2009 07:50 AM

Are you assuming that Chinese export rely heavily on the USA?


These are all good questions, but they may not be the right questions. A lot of Chinese exports to Taiwan, Korea, Europe, etc, may be based indirectly on U.S demand.

For example, if I buy a tomato, I buy it from a store and not from the farmer...but if I stop buying tomatoes, the farmer eventually suffers.

Same thing here. There is so much shipping across countries for manufacturing, that it's impossible to tell what is going to happen.


January 15, 2009 01:11 PM

Of course, my question is relevant to the issue on this blog! The underlying assumption is that China is so dependent on the USA market that if the USA has an economic issue like right now, then Chinese economy would go down. Then, we the readers would like to know the % of Chinese export is for the USA and % is for the European Union so we know for sure if the Chinese economy is so dependent on the economy of the USA. Also, we would like to know what percentage of the Chinese economy depend on export and percent of the Chinese economy rely on internal consumption. The whole premise of your blog is that the Chinese economy depend heavily export to USA (Since China has a trade surplus with respect with the USA and the European Union) and we would like to have proof to back up such as assertion! Are my questions irrelevant according to you? This seem a coup out to avoid answering relevant questions by saying that they are not the right question!


January 15, 2009 01:24 PM

"Mike Mandel
January 15, 2009 07:50 AM
Are you assuming that Chinese export rely heavily on the USA?


These are all good questions, but they may not be the right questions. A lot of Chinese exports to Taiwan, Korea, Europe, etc, may be based indirectly on U.S demand."
The way I see is like this:
Chinese import 50% of PC components from Korean, Japan, Taiwan and the remaining 50% of the PC component are sourced in China and used all those component to assemble the PC and exported to the USA. If the USA, buy less PC from China, then China would need to import fewer component from Japan, Korea and Taiwan and China need to lower this excess capacity (closing assembly lines, laying worker off etc) so it affect Japan, Koran, Taiwan and China if the USA is having economic problem. However, we need to know if the USA buy 50% or more of the Chinese export so we know how linked are both economies as you have implied in this blog! Chinese economy will be affected for sure if the USA fall into a recessiono or seem to be a coming depression but the question is the extent that it will affect Chinese economy!

Steve G

January 15, 2009 08:56 PM

China and India both have a couple of traits that 1929 US did not have: a. huge domestic markets that can be turned on with the right fiscal and monetary policies and b. resilience to subsist. As Peter Drucker said, one thing that makes me nervous particularly about China (more so than about India) is that it needs to absorb the rural to urban migration without having to undergo a social or political upheaval. Such upheaval, while might be good in the long-term will make things significantly worse in the short-term. My gut tells me that the worst case scenarios discussed here are likely to play out only if the social/political upheaval becomes a reality. I am sure the policy makers are losing sleep over this as well.


January 16, 2009 03:42 PM
Beijing also warned last month it would not keep lending money to the US economy indefinitely, in an editorial in the government-run China Daily -- an English-language newspaper aimed at a foreign audience.

"China's increased purchase of US Treasury securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis," it said in an editorial.

Mike Mandel

January 16, 2009 03:52 PM

Steve G writes:"My gut tells me that the worst case scenarios discussed here are likely to play out only if the social/political upheaval becomes a reality."

I agree with that. What I used to say is that China has a first world manufacturing sector, a third-world finance sector, and a communist government. I thought that the big problem was that the communist government wasn't going to have sufficient political legitimacy when the inevitable financial crisis came (Political legitimacy is key because in a financial crisis, the government has to break existing contracts and change laws).

I did not expect today's series of events, where the crisis started in the U.S. But it's still true that this will be the ultimate test of the political legitimacy of the government (both in China and in the U.S.)

James Raider

January 18, 2009 03:57 AM

Great debate here, on predicting the right future. The international economic picture today has no resemblance to that of 70 years ago.

The interdependence is unlike anything seen before and technology has had much to do with it. A major factor will be the actions of the U.S. relative to its dollar printing presses. Assess the actions of the Congress and the Administration over the past couple of decades, and that will provide some indication of what it will do now.

Strap on your seat belts and watch the presses roll like they've never rolled before. Trillion dollar stimulus packages will require it. ..... the grandchildren will be proud.


January 19, 2009 03:40 AM

To James Raider
" A major factor will be the actions of the U.S. relative to its dollar printing presses. Assess the actions of the Congress and the Administration over the past couple of decades, and that will provide some indication of what it will do now."

The printing press must be working overtime to print enough money to bail out the entire Wall Street and maybe Main Street. I wonder if the Dollar will lose it world currency status if it is devalued massively through inflation.


January 28, 2009 07:43 PM

Peter Schiff on the USA economy

Graham James

February 10, 2009 10:53 PM

Whilst the making of comparisons between the U.S. in the Great Depression, and China now, are interesting, the process of using analogy to make/raise a point, is not unproblematic. Similarity is not sameness. Consequently, I'm a bit uncomfortable with this type of attempt to make predictions about what will happen in China in the NEAR and distant future. My concerns about China stem from being unable to see when the vicious cycle of falling exports exports and low domestic consumption, is going to be broken. On the first point, China has little control over this and has to wait for things to improve elsewhere. On the second point, it's hard to see how the stimulus measures will improve consumer confidence to the point where the people will actually spend more than they did previously. Even when times were "good" in China, people generally continued to save a high proportion of their income. Now that things are tough, why would they now want to spend? I suspect that the Central Chinese Government is "flogging a dead horse" in trying to encourage increased domestic spending, because the people themselves understand their system so well, and that's why they're such diligent savers. If I'm close to the about this, then the Central government, can't really do much about this aspect either. So the question becomes - HOW and WHEN will the vicious cycle be broken, and how severe will the fallout be for China in 2009 and beyond? The answer may not be in appealing to historical analogies, but by examining the particular set of economic circumstances which exist in China now.


February 11, 2009 02:52 AM

I always find it interesting to watch Chinese nationalists trying to compete and keep up in intellectual discusions. More than half of what is being said here is negative towards the US, and yet you all seem to assume that anything anyone says is an attempt to slam China.

Bravo on learning english.. I respect you for that, as I can not read mandarin, but please do know you are missing the actual english meanings around 65% of the time.


February 11, 2009 08:23 AM

Lots of Chinese read Business Week. Surprising boosterism here. Don't miss the point. Asia, Europe and North America have been intertwined and now may unravel a bit. The producers are paying a steep price as the buyers are pulling back.

In 2008, US retail container volume fell 7.9 percent, according to Port Tracker, Global Insight.

December cargo volume was down 13.9 percent from November and down 17.2 percent from December 2007.

Cargo volume is at its lowest level at North American ports since 2004.

If this trend continues, its patently unsustainable for Asian economies. Who is going to pick up the slack?

Worse, the (buyers) North American and European governments have bigger fish to fry on the domestic side. Rebooting the trade deficit is probably pretty low on US Administration's the list and even the most conservative governments in Europe are tied to labor locally. Looks like domestic stimulus comes first all around.

My guess, domestic demand isn't enough for China's production system.

Mike Reardon

February 11, 2009 01:03 PM

In news articles yesterday, year over year Chinese exports fell 17.5 % in January. That reflects world wide contraction that is dramatic exactly like the news that oil demand has also dropped even farther in January.

Its obvious that contraction is a Western event that will impact developing nations and it then becomes a time realignments will happen more dramatically. China will have local targets that can form regional support centers to uphold there joint economies.

Japan now has a stronger yen that is a issue for them in exports but it gains dramatic pull and extension against the Euro and the US dollar in commodity purchases. A realignment in Asia’s developing markets will include a new stronger yen.


February 12, 2009 12:53 AM

Chinese export fell by 17% and import fell by over 40% when compared with last year January 2008! This year Chinese new Year fell on January while last year Chinese new Year fell on February and that would explain the discrepancy. Chinese new Year, all the factories shut down for one entire week of work and that would explain the big discrepancy. I would compare the February export and import of this year and with the February export and import from last Year to see if there is huge discrepancy


February 14, 2009 03:40 PM

The biggest difference is that China has no resources of its own while USA used to be self sufficient. it is a very big difference and it will mean a difference between becoming super power or not.


February 18, 2009 12:13 AM

China has has oil reserve comparable with the American oil reserve, the greatest coal reserve, natural gas reserve, copper, iron ores and more! Also, China has great wind power and solar power potential that are being exploited!


March 1, 2009 04:51 PM

Chinese surpluses have increased in purchasing power because of deflationary pressures and the rise in the US dollar as debt is collapsed and unwound around the world. If the Chinese are smart they will accumulate any resources they are required to import while prices are low and stimulate their domestic economy. In fact, they might even determine the bottom in commodity prices.
In contrast, the debt of Americans is becoming even more burdensome because of the same deflationary forces. Americans cannot start spending again until deflation comes to an end. We might underestimate it. When you had an economy built on 2,5,10,20,50 times leverage, printing a couple of trillion isn't enough to reverse deflation overnight. The only thing that will inflate during this period is the US dollar because Americans don't have any savings. Of course, it might ultimately collapse when the Chinese and others sell their government securities but right now it is providing the best return of any asset class so it might take longer than some are predicting. (even if it turns out to be the next bubble)
Ultimately, if the US is forced to effectively socialize housing by acquiring foreclosed properties and renting them back to the bankrupt owners (in whatever form this takes), Americans will effectively become tenants of Chinese (and other holders of government securities) landlords who are the ultimate owners of the debt. That would be some irony - Americans becoming tenants of communist landlords!


November 25, 2009 02:56 AM

Ten months has passed since this article was written. China is growing fast even though its export is 20% down when compared with last year export rate! Being a "surplus nation" does not mean that it could be hit hard in this type recession. The fact that that the USA was affected so bad in 1929 ( and now) was due to financial issue such as stock crashed, banking failure, destruction bad investment and constant government interference that make everything worse.
Germany is another surplus nation along with Japan and both countries are growing back lately even though with some difficulties.


November 25, 2009 09:37 AM


Thank goodness for global stimulus, eh? :)


November 30, 2009 04:58 AM

details on , impact of american recessin on chinese

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

BW Mall - Sponsored Links

Buy a link now!