Publication: China Brief Volume: 3 Issue: 2

By Gordon G. Chang

“If we didn’t have China I would be suicidal,” chief Morgan Stanley economist Stephen Roach said this month. “It’s the only bright spot in the world economy.” And bright spot it is: Beijing announced that its gross domestic product grew 8 percent last year. The rate is so good that some are wondering whether the People’s Republic can become the new engine for world growth.

From today’s perspective it certainly looks as if it will. No other major economy will report anything near 8 percent for 2002, and many agree that the prospects for future Chinese growth are rosy. “China can still grow at more than 7 percent in the near term, and we don’t see anything interfering to drop that rate,” says Jonathan Anderson, a senior Goldman Sachs economist in Hong Kong. Despite all the sunny predictions for the world’s most populous nation, we have to ask ourselves whether the pace of the country’s development is sustainable.

Chinese economic growth in 2002, announced before year end, as is the custom of Beijing statisticians, was largely the result of three factors: record investment flows inward, surging exports and massive fiscal stimulus. The central government notes that foreign direct investment last year totaled US$52.7 billion, the largest amount in 2002 for any country, even the United States. Exports also outperformed expectations, jumping 22.3 percent to US$325.57 billion (imports increased by 21.2 percent).