There’s another, slightly different view of China’s prospects from the International Monetary Fund which this week produced its latest outlook for the economies of the region, including Australia and New Zealand.
The Outlook says that Asian economies are unlikely to undergo a sustained recovery until midway through next year, and more importantly, they should not rely on China to pull the region out of its current slump.
Judging by the sharp rise in Asian shares in the past two months, that view is old hat.
The MSCI Asia Pacific Index is up 37% since the low on March 9, and it rose 12% alone in April as investors bet on the rebound being shared, but that’s a blinkered view of the near term.
In the Outlook, Joshua Felman, assistant director for the IMF’s Asia and Pacific department, said China’s relatively strong performance this year will do little to help other Asian countries because most of its growth will come from domestic demand, including public infrastructure projects, and that will not benefit other regional economies.
Most of Asia instead will have to wait at least another year before advanced western economies recover and the IMF predicted that Asia is suffering a ”long and severe recession” and the region’s recovery is likely to be weak after the slowdown.
It urged Asian governments to adopt more stimulus measures, including interest rate cuts and increased fiscal spending, to counter several potential downside risks, including a fall in corporate investments and a rise in the number of jobless.
The IMF predicted that the regional economic growth will expand by 1.3% this year, down from 5.1% in 2008, before growing by 4.3% next year.
China will be the strongest regional performer this year, with a growth rate of 6.5%, while export-dependent Singapore will be the worst as its economy contracts by 10%. Australian growth is forecast to fall by 1.4%.
The IMF report says the synchronized nature of the global downturn and Asia’s strong reliance on external demand weigh against the prospects of a speedy turnaround of economic activity in the region.
"The current crisis vividly illustrates that, far from having “decoupled” from the global economy, Asia has experienced accelerator effects at work.
"Hence, despite governments’ efforts to invigorate domestic demand, the prospects of a recovery at this stage hinge critically on a rebound in global activity.
"The April 2009 World Economic Outlook expects global growth to gradually recover in early 2010, but to remain well below potential until the end of that year.
"The timing of the recovery depends on progress in stabilizing financial market conditions in mature markets.
"It will take some time to deal with bad assets and restore confidence in bank balance sheets, especially against the background of a deepening downturn that is expanding losses on a wide range of bank assets.
"Nevertheless, comprehensive policy steps to improve credit conditions, together with sizable fiscal and monetary support, will eventually create the conditions for a recovery in advanced economies next year," The IMF said.
The key question for the Asia region is: will the region need to wait for this to happen before returning to pre-crisis growth rates?
"Historical experience shows that Asia will need improved demand from advanced economies to escape the crisis.
"Looking ahead, Asia’s growth path will continue to run parallel to the global economy.
"For the rest of 2009, the external shock is expected to continue to spill over into private investment and consumption, causing many countries to register negative growth rates.
"Then, as the global economy revives in 2010, so too will Asia.
"But the recovery is likely to be tepid—and not only because the global economy will remain weak.
"Historical experience shows that investment tends to recover slowly from downturns, especially those that involve financial stress."
It said that in particular, a delayed global recovery may trigger more insidious feedback loops between the real and financial sectors in Asia.
"Continued weak demand and tighter financial conditions could lead to a surge in corporate distress that could feed back into Asian banks, making them even less able or willing to extend credit to the private sector.
"At the same time, a surge in corporate bankruptcies could spill over to domestic demand, with a sharper-than-anticipated increase in unemployment rates putting a dent in consumption.
"In the past the path to recovery in Asia tends to be led by a strong rebound of exports.
“In particular, strong global demand and currency depreciation allowed a rapid, V-shaped rebound of the region from both the financial crisis of the late 1990s and the IT bust episode of early 2000.
"This time around, though, there is no economic momentum elsewhere in the world to create demand for Asia’s products.
"Hence, net exports’ contribution to GDP growth is expected to cease over the next two years." (A point Dr Oliver made about China in his report).
The IMF said econometric evidence linking exports to domestic demand in selected Asian economies shows that it may take up to about a year and half for investment growth to return to its pre-crisis rate in countries with a large trade exposure to advanced economies (such as Korea, Malaysia, Singapore, and Thailand).
"Private consumption is expected to remain subdued as long as ri
