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Saturday, May 01, 2004

Let Us Pray -On china by Thomas Friedman

The most striking thing about being in Asia today is hearing how much more important China's growth engine has become for companies all across the region — and well beyond it. When Chinese authorities told banks last week to cut back their wild lending, commodity prices and stock markets tumbled all over the world. News that China is having regular blackouts because it can't buy enough crude oil is helping push up gasoline prices the world over.To some degree the world is getting hooked on China — its cheap labor, its voracious appetite for commodities and capital (over $50 billion in foreign direct investment last year) and its emerging middle class. The more hooked we become, the less the world can tolerate any sort of prolonged instability there. If the China bubble bursts, it will be the mother of all burst bubbles. Which is why we need to pray that China's leaders will have the skill to cool things down, just enough but not too much, without some wheels falling off."A lot of the world's stability or instability is resting on the leadership in Beijing — there is no question about that," argues Richard Koo, chief economist for Nomura Research Institute. But, he insists, "Chinese leaders understand what world they are living in. They have a general equilibrium view of the world — that what they do affects us all and then comes back to affect them." Thomas friedman concludes,"The relationship of the world to China right now reminds me of that old banker's rule: If a client owes you $1,000, that's his problem. If a client owes you $1 million, that's your problem. China's stability is our problem".

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