Changing of the economic guard: The shift toward East Asia

While many economists still point to the U.S. as the key driver of global economic growth, market watchers admit that a gradual shift in power, capital, and wealth toward the East Asian region is occurring — with China, of course, seen as the major force in that arena.

“Even though China is larger and growing faster, the U.S. is still the engine of the world’s growth,” says Ken Goldstein, economist at The Conference Board in New York City. “We have the financial capital, we have the reserve currency of the world, and we have natural resources.”

Nonetheless, no one can ignore the growing tide.

“Global growth is shifting in that direction,” says Brian Fabbri, chief economist at BNP Paribas, East Asia.

The growth numbers out of China have been astounding in recent years and have continued to surprise economists amid expectations for a slowdown.

“China is growing at a blistering pace and India has not been far behind,” says Charmaine Buskas, economist at Moody’s Economy.com. “The U.S. will increasingly become less of a locomotive of growth.”

After all, notes Goldstein, “China is trying not to grow by 10-11 percent, while the U.S. struggles to grow at 3 percent and the growth rate in Europe is even lower.”

China has chalked up double-digit gross domestic product (GDP) readings for several years running now, with forecasts in the 9- to 10-percent region again for 2006. Over the past several years China has managed to defy many economist’s forecasts for economic slowdown. And, with massive infrastructure building and investment dollars being poured into pre-2008 summer Olympic activity, forecasts now say this above-trend pace of GDP growth will likely continue. Despite concerns regarding economic overheating, the managed nature of the Chinese economy, which includes price controls for a variety of key consumer products, has for the time being kept inflation down, at least at the consumer level.