U.S. recession fears not a global concern for China, India and the developing world

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SAN FRANCISCO, Jan. 24 – Chris Devonshire-Ellis, Senior Partner of Dezan Shira & Associates and publisher of China Briefing has just been interviewed by Agence France-Presse over concerns that the U.S. markets may well tip the world into a global recession. We reproduce the interview below:

AFP: Everyone is saying the U.S. is having a recession; we want to do a story on the emerging markets power, say China and India. Since your firm is very familiar with these markets and the topic, we’d like to have your opinion on the following questions. Can China and India help the world lessen the impact of a global economic slowdown?

CDE: Yes. Neither markets are particularly integrated with the United States and both have market fundamentals that have separately evolved from the West over the past 60 years. The media quotes the Shanghai bourse for example, but it’s unnecessary, the Shanghai market isn’t interactive with global markets and serves only China’s domestic market. Mumbai is more connected but India is going through a domestic consumer boom. What happens in the US has little impact on these markets. So by definition China and India will not participate in a worldwide recession and will therefore be hedges against this. Welcome to globalization. It’s protective as we will see. The United States has problems; however these will be offset against markets elsewhere. The new world order is working.

AFP: Are their engines strong enough to power the world economy? Why or why not?

CDE: China and India possess 40 percent of the world’s population. OK, so maybe 20 percent of this can purchase to international standards, however combined this is still larger than the U.S. disposable middle class income. Plus, both largely supply much of the world’s consumer goods. The global wheels will keep turning. Mexico also and to a lesser, yet significant extent, Brazil and Russia will help too. Their fundamentals are strong in the global financial supply chain and will keep us globally out of this problem. The reality is America alone cannot control the global economy, which now finally is correct. We now have a better international balance. As I mentioned before, globalization is here, it has arrived, and it’s about to bail out a weak market – the United States – as the U.S. has done before. It’s more a maturity of other markets than a major U.S. default that has brought us to this point. Safety lies in numbers.

AFP: In the face of the market turmoil and worries about the U.S., are these two nations now strong and solid enough to stave off problems generated by the U.S. economy?

CDE: As I have said, it’s a global economy now, not a British gold standard or an American dollar backed one. Although there is still some way to go in this concept, we are about to see the benefit worldwide of hedging, and the true impact of the meaning of the WTO and globalization. The U.S. problem will be absorbed. The world’s economies are a rather bigger place than just the U.S. sub-prime loan market and they are worth far, far more.

AFP: Will China and India decouple from U.S.? If not, how long will it take?

CDE: I see no reason for anyone to change any relationships. It’s a storm in a tea-cup and will be absorbed. What is occurring is the rise of other economies to balance out those of the U.S., and that has to be a good thing. It is clearly absurd to have poor American fiscal lending policies affect the lives of businessmen trading in Mumbai, Beijing, Moscow or Mexico City, and globalization means hedging worldwide. We are about to see exactly what that means. The United States may suffer, but the rest of the world will still be OK.