It has become almost politically correct to blame the latest global growth scare on the usual suspects, Japan and Europe, and to suggest that if only those skinflint Germans would spend more, all would be better. After all, the American economy is relatively resilient, so who else is there to blame? To the extent anyone brings up China, people seem to whisper its name politely, not mentioning how Beijing’s borrowing and spending binge threatens the world.
When the U.S. sneezes, the world catches a cold, an old saying goes. But now it’s China’s health that matters most. In 1998, when the world expected the Asian financial crisis to cause trouble world-wide, the trouble never came. Emerging Asia, including China, contributed little to global growth at the time, and the U.S. economy was accelerating. That was enough to prevent the Asian crisis from slowing global growth, which held steady at around 2.5% in 1998.
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