Not a chance, but you might think so judging by the outbreak of bullishness from US investment banks. Goldman recently upgraded GDP growth from 6 to 8.3% and Morgan Stanley from 5.5 to 7% on the back of a successful implementation of the $586bn stimulus plan and astonishing bank loan growth of $680bn in Q1. No worries about money velocity in China; the advantage of being a centrally planned economy with state controlled banks is that money creation can be channelled directly to consumers and firms (although the quality of those force-fed loans will inevitably be dire; I suspect much is leaking into stock marketspeculation and renewed commodity hoarding). The brutal reality is that the Chinese growth model is bust in a sustained deleveraging scenario for its foreign consumers. It is telling that the country's imports from Asia are falling even faster than its exports, and that both commercial and residential real estate prices are slumping on massive excess supply.

China's economy seems to have bounced back in March, thanks to accelerated infrastructure spending by local governments building yet more 'me too' conference centres and business parks but investment productivity has been in relentless decline in China in recent years, and a repeat of the Japanese strategy of simply pouring more concrete is doomed to fail. China's economy remains investment-dominated; in 2008, investment accounted for 43 percent of all spending (measured from the expenditure side of the national accounts). Consumption accounted for just 36 percent, and it's hard to see it rising much as effectively privatized health care and education require huge personal savings to finance. Additionally, a dysfunctional banking system shuts out most smaller private firms, who are obliged to hoard cash as a consequence. Until these structural impediments are corrected, which will take years, a substantial rebalancing of the Chinese economy will be impossible. That leaves the country critically dependent on a revival of global growth; China cannot lead such a recovery, but simply follow it. As US personal savings begin a structural rise to maybe 7-9%, and the trade deficit tumbles, China is the epicentre of global deflationary forces, saddled with huge structural overcapacity across a range of industrial sectors.

The government's stated effort to boost consumption relative to investment and exports (it has actually been falling since 2000) depends on raising incomes closer to Western levels and completing the social welfare system; neither is likely in the short term. The frantic credit growth led model that is exciting bank strategists cannot sustain the economy beyond the very short-term, and ultimately will trigger the sort of financial crisis in China we have just seen in the West, as non-performing loans soar. So could China provide a potential downside shock for the global economy later in 2009? One theme I repeatedly emphasise is how important it is to reality check any market consensus, bearish or bullish. Financial analysts are particularly subject to cognitive bias in their assessments, so it's crucial to draw the economic parameters that constrain their forecasts, whether it's a company's market share or a country's growth potential. 

The Chinese growth model has involved policies that aim directly or indirectly at boosting savings and channeling huge amounts of subsidized resources into investment and manufacturing capacity, a repeat of the mercantilist Japanese and Korean development models.  This combination necessarily involved generating large and consistent trade surpluses; China had to export the difference between consumption and production or they would have been forced to run up ever increasing inventory (which is what has been happening recently I suspect). When a country as large as China pursues policies aimed at generating trade surpluses they run into a very strict economic accounting constraint; another country must be capable and willing to run large corresponding trade deficits, a role played happily by the US until now as importer of last resort until its trade deficit peaked at 7% of GDP in 2007, reflecting an unprecedented 71% share for consumption in the economy.  Now,  US households have to rebuild their tattered balance sheet, a process that implies several years of deleveraging and a reversion to the mean for both savings and consumption. That implies  US consumption growing a lot slower than trend US GDP growth it at all, itself pegged to at most 2% by a number of structural constraints, notably a 400% debt/GDP ratio.  Current Chinese policy reflects denial of these new realities. The composition of the recent demand stimulus simply does more of what worked in the past: increased investment in the production of exportable goods and heavy industry , increased production of semi-finished manufactured goods and increased investment in infrastructure. The inevitable result of this unsustainable investment boom will be increased excess capacity and losses in the export sector and further Soviet scale degradation of the environment into the bargain.