HANGHAI -- China's economy has defied the
worldwide slowdown and continued its long streak of rapid
growth, raising expectations that it has begun to pull its
weight as an engine for Asia and the world.
With the United States, Europe and Japan all experiencing
sluggish growth, China is now expected to expand by a robust 8
percent this year, fueled by a surge in exports, soaring
foreign investment and a housing boom.
Even if growth cools next year, as most economists predict,
the country has begun to rival Japan as the pivotal player in
Asia's economy. It has become the largest export market for
both South Korea and Taiwan, for example, and has elbowed out
Japan to become Asia's biggest exporter to the United
"China has already become the largest market for several
East Asian countries," said Nicholas Lardy, a leading expert
on China's economy at the Brookings Institution in Washington.
"It has become deeply integrated with the region and to an
extent is pulling all its neighbors along with it."
Over all, China's economy lags far behind those of Japan
and the United States. Its output is about a quarter of
Japan's and about a ninth that of the United States. Even if
China continues to grow much more quickly, it will take until
the middle of the century before it becomes the world's
Beijing has also moved exceedingly slowly to tackle the
woes of its state banking system and to dismantle money-losing
state enterprises. The Organization for Economic Cooperation
and Development estimates that both sectors will drag down
economic growth the next few years. Some economists argue that
bad debts pose a severe long-term threat to China.
Yet those problems have been around for many years, and
they have not stopped China from beginning to realize its
potential. This year, it appears set to attract a record $50
billion in foreign investment, multiples more than the amount
received by any other developing country and perhaps more than
the United States.
Much of this investment has gone into bolstering China's
position as the world's assembly line. It is now a leader in
almost every category of manufactured goods, from shoes to
China produces so much, in fact, that some economists say
it has helped create a glut of industrial products that has
undermined prices — hurting profits but helping consumers —
around the globe. China's home market has experienced falling
prices for five consecutive years. So far this year, consumer
prices have declined 1 percent.
Fierce competition and falling prices have forced
multinational corporations to move production lines to China,
which can make goods for less than its Asian neighbors can.
So, its growth has come partly at the expense of the region.
Still, about half of its exports, or about $275 billion last
year, consists of products made in China by foreign companies
or joint ventures of Chinese and foreign companies.
China has also begun pulling in imports at a record pace.
Under the terms of its entry to the World Trade Organization
last year, Beijing agreed to reduce tariffs sharply. They now
average 15 percent, about a fourth of their peak level in the
1980's. It must reduce them further, to 9 percent on average,
One sign of its growing importance to the world economy:
China passed the United States this year as the world's
largest importer of steel, helping absorb some global
overcapacity. China already produces more steel than Japan and
America combined, but a building boom and a surge in auto
production led to imports of 23 million metric tons in the
nine months ended in September, compared with 22 million tons
for the United States in the period.
Or consider Asia's tourist industry. The number of visitors
to Southeast Asia from both Japan and the United States has
fallen below the levels of six years ago, according to
Singapore government statistics. But Chinese mainlanders are
traveling like never before, with the number doubling the last
six years and continuing to grow despite the terrorist attacks