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18 May, 2010 07:38

Shaky markets could still undermine China’s global economic lead

Europe's debt crisis is not just threatening prosperity in Eastern Europe and Russia, it's also likely to have an impact on the world's biggest emerging economy, China.

China’s commercial might is currently on display at the world expo in Shanghai. Among attendees at the Shanghai Expo are large economies like France, Russia and the United States but also Ukraine and Greece – both living off the IMF loans.

While most developed countries struggled with the financial crisis last year, China still managed to post world-beating growth of 8.7%. China has now become such a centre of gravity for commerce that no nation can afford to be left out, says Yaroslav Lissovolik, Chief Economist at Deutsche Bank Russia.

“There is a lot of dynamism in the East Asian region, certainly throughout the crisis we have seen higher growth rates in Asia compared to Europe and generally the developed world and I think in the coming years that will probably be still the case.”

Major global political figures have attended the, with China currently the locomotive of the worlds economic recovery. Expo 2010 is meant to increase faith in the global economy by looking into the future with innovative technology suggested as a way for recovery.

But that recovery is still uncertain. And the clouded outlook in Europe is threatening to put even China in the shade, says Chris Weafer, Chief Strategist at Uralsib.

“While they can produce cheaply they have to sell it to US and Europe. If they don’t want to buy it will have an effect on China, and those social problems could come earlier. China is in a very weak position as their fate is tied up with what happens in the US.”

Europe's debt crisis spells double trouble for Chinese exporters. Not only are consumers likely to buy fewer goods when times are hard, but the dramatic fall in the value of the euro against the Yuan – 15 % in 4 months – also makes them much more expensive.

China's trade balance which stood at $200 billion in 2009 might shrink by as much as a half this year, according to some economists.

This may bring more balance to international trade, but it will also provide a further drag on an already stuttering recovery.