* China poised to recover but not roar
* Economy rebalancing after 30 years of double-digit growth
* Europe holding back Asia and vice-versa
By Alan Wheatley, Global Economics Correspondent
LONDON, Aug 5 Investors will be looking to a
data deluge from China this week to give the global economy a
further lift after Friday's strong U.S. jobs report. They risk
Figures for July, starting on Thursday and covering
everything from trade to bank loans and investment, are likely
to show the world's second-largest economy is, at best,
stabilising rather than recovering briskly.
And while Beijing has both the will and the means to provide
extra fiscal and monetary stimulus if growth flags,
China-watchers rule out a repeat of the massive expansion of
credit that successfully rebooted the economy after the global
financial crash of late 2008.
That means China, and Asian economies increasingly tied to
it, can do little to overcome the headwinds blowing in from the
United States and, especially, Europe.
"The problems in Asia that are causing the slowdown come
predominantly from outside the region," said Rob Subbaraman,
chief economist for Asia at Nomura in Hong Kong. "Europe is a
bigger than the U.S. as an export market for most Asian
countries now, and it's a big investor in the region."
In today's interlocking global economy, Asia's travails are
rebounding on the rest of the world. Siemens,
Europe's biggest engineering conglomerate; BASF, the
world's top chemicals maker; U.S. blue chip United Technologies
; and Japan's Hitachi have all recently reported
the impact of lower Chinese demand.
Asia as a whole wants to wean itself off exports and
generate more domestic growth. China's current account surplus
is just a third of what it was in 2007. The process, though, is
"Over the next decade we will see domestic demand becoming a
bigger engine of growth for China, and that will change the
picture quite a lot for Asia," said Rajiv Biswas, chief
Asia-Pacific economist for IHS Global Insight in Singapore.
"But we're not yet in a situation where the growth engine in
Asia is strong enough to cruise through a recession in Europe
and stagnant growth in the U.S.," he added.
China's economy expanded 7.6 percent from a year earlier in
the second quarter, the slowest pace in three years. Economists
expect growth to pick up moderately in coming months since
Beijing has cut interest rates and is speeding up the approval
of investment projects.
But this year has been remarkable so far for what has not
happened in China: the ruling Communist Party has not gone flat
out for growth despite the imperative to preserve economic and
financial stability ahead of a once-in-a-decade leadership
That is because the 2008 pump-priming has swapped one sort
of dangerous imbalance for another: China's external surplus has
shrunk, but the economy has become more dependent than ever on
investment, which accounts for close to 50 percent of GDP.
Personal consumption, by contrast, is no more than 35 percent of
GDP, half that of the United States.
Beijing wants better-balanced growth and so, to the surprise
of some, it has kept in place curbs to tamp down house prices.
It has also kept local government investment on a fairly tight
Seen in this light, the danger from this week's figures is
not so much that growth undershoots but that, if it does,
Beijing presses the panic button and puts investment spending
back on the fast track.
"The risk is that you get more stimulus but it leads to a
more unbalanced economy," Nomura's Subbaraman said.
As such, he said he would be paying particular attention to
the relative strength of July's data on retail sales and
Economists have been paring their full-year growth forecasts
for China to 8 percent or less. Markets would react badly to a
further slowdown, but Ting Lu, Bank of America Merrill Lynch's
China economist, said even a 7 percent pace would not be bad
given the weakness in the global economy.
"We expect China to achieve a growth soft-landing if the
euro zone does not break up," Lu, who has an 8 percent forecast,
said. "We see many risks, but the Chinese economy is still far
SHIFTING DOWN A GEAR
Economists at Barclays Capital agreed that the overwhelming
likelihood was recovery rather than relapse in China over the
rest of the year as the government steps up efforts to support
But they said financial markets needed to adjust their
expectations to a China that grows at 8 percent a year and not
the 10 percent average annual rate of the past three decades.
"Unlike post the 2008-09 crisis, China will not save the
world. Political and economic constraints in China (as well as
in the other economies) suggest there will be no silver bullet
or panacea to quickly pull the global economy out of the
doldrums, and 2012 will be a difficult year," they said in a
No outside central bank watches China more closely than the
Reserve Bank of Australia, given the Australian economy's
dependence on commodity exports to the Middle Kingdom.
In a quiet week for major central banks, the RBA is expected
to leave interest rates unchanged at a policy meeting on
Citi expects some small upgrades to the RBA's economic
forecasts when it released its quarterly monetary policy
statement on Friday.
In Britain, by contrast, the Bank of England may well revise
down its forecasts for growth and inflation in 2012 and 2013
when it publishes its latest inflation report on Wednesday,
according to economists at Investec.