China's Role in the World Economy (Photo : Getty Images)
As U.S. consumption weakens, economists are putting hope in China to raise the global economic growth outlook, expecting the country to use its economic muscle to drive spending and implement monetary policies that will sustain growth.
But now, China is aimed at addressing economic risks and imbalances amid an expected slowdown of the economy in the latter part of the year and the rising concern about its growing debt, according to the Star Online.
"Being the world's second largest economy, China can, to some extent, flex its economic muscle to achieve decent performance and help prevent the world economy from facing a major downturn," Malaysian Rating Corp chief economist Nor Zahidi Alias said.
China contributed 40 percent to global growth last year, compared to the U.S. with only 10 percent.
According to Danny Wong, Areca Capital CEO, China may have a greater influence on global growth as its economy shifts from an export-driven one to a service-based economy which is driven by local consumption.
"It would not be surprising for it to surpass the U.S. to become the world's largest economy, if its growth rates sustain," Wong added.
But unless the Chinese economy grows faster than what it gains from trade and increase its share of global output, China cannot become the world's growth engine, Wong noted.
"It has fallen into the same trap as the U.S. in needing to supply access to debt more than incomes permit,'' Inter-Pacific Securities head of research Pong Teng Siew also noted.
Economic sustainability
According to Zahidi, some of China's measures may result in moderate expansion in the next few years, although policymakers are focused on addressing imbalances such the rising real property prices and the corporate debt.
"As long as China's economic restructuring is navigating at a steady pace with no unwarranted financial disruptions, mainly from risks associated with its towering debt, the strength of China's growth will help lift demand for Asian goods and commodities," Zahidi said.
"The sustainability of China's economic growth hinges critically on the continued support of monetary policies to hold up domestic demand," he added.
Socio Economic Research Centre executive director Lee Heng Guie, however, said that the disadvantage of this is that it may result in a trade conflict with the U.S. and drastic impact on the property market.
Sustaining world economy
Chris Eng, head of research at Etiqa Insurance, said that, although China helped sustain the world economy in 2009 and 2010, its domestic demand must be big enough to sustain the world economy.
Eng added that China only succeeded in 2010 because of the surge in investments and the feat is unlikely to happen again.
In the first quarter, the Chinese economy posted 6.9 percent growth, the first back-to-back growth in seven years.
Bloomberg attributed the acceleration to China's strength to infrastructure investment, housing, export and retail sales, which all grew without affecting the credit risks.
Last month, China's imports from the Association of Southeast Asian Nations (ASEAN) rose 22.7 percent, with a 41.5 percent jump from Singapore imports; its imports from Australia also rose by about 75 percent.
China's growth came as U.S. inflation retreated a step back last month while retail sales declined for a second month, Bloomberg said.
"But a large part of growth is achieved by another unprecedentedly large fiscal stimulus, infrastructure investment and debt escalation, which is currently being camouflaged by increasing housing prices and land values," noted Zhu Ning, author of "China's Guaranteed Bubble" and deputy director of the National Institute of Financial Research at Tsinghua University in Beijing.
