The old adage was that when America slowed down, the world economy came to a grinding halt. The current version of that is the eurozone debt crisis could spark another global downturn. And China? Surely it too will be pulled into the economic quagmire, given its role as the world’s manufacturer?

Perhaps not. According to a note published by HSBC on Wednesday, net exports made almost zero contribution to China’s 9.6 per cent GDP growth in the first half of 2011. Rather than moving in time with the rest of the world, China may be marching to its own beat.

According to HSBC economists Qu Hongbin and Sun Junwei:

Chinese growth has become much less export-driven. The net exports to GDP ratio has shrunk to 2-3% from 8-9% before the global financial crisis… Domestic demand has contributed 110% of China’s GDP growth since 2009, much higher than the average of around 85% in the previous three years before the crisis.

During 2008-09, when the global economy slipped into a recession and net exports fell by 40% y-o-y, this 3-4ppt contribution turned into a negative 2ppt contribution, cutting the GDP growth rate by 5ppts before the massive stimulus package picked up the slack. This time around the implication is that if the global economy falls into a recession again, net exports would at most cut China’s GDP growth by 1-2 ppts.

As my colleague Simon Rabinovitch noted in his post earlier on Wednesday, China’s central bank governor Zhou Xiaochuan has been lauded for his management of monetary policy. Rabinovitch says any second stimulus would be much lower this time around, if needed at all.

HSBC may be overstating the case for the strength of China’s domestic demand. The big issue of local government debt risk – that concerns many observers – is relegated to a paragraph at the end of the note. The authors say it is a sizeable but manageable problem. But they also write: “the liquidity problem needs urgent solutions as over 50 per cent of the debt is due to mature in the next 15 months.” That sounds serious.

The property market too gets little emphasis, although the bank notes – right at the end of the note – that it is “in danger of overheating” and has caused “social tension”.

Other research houses have dire warnings on these questions – Forensic Asia’s Gillem Tulloch, in this FT video, for example, on the property bubble; and Moody’s earlier this year on local debt.

However, the low dependency on exports for growth is something that may challenge the “Made in China” notion. Any economic problems China encounters in the next few years will be more of its own making than anything imported from the US or eurozone.

Related reading:
‘Made in China’ tells us little about global trade, Pascal Lamy in the FT
China: PE rides the global storm, beyondbrics
Ben Simpfendorfer: China’s private banks are fuelling bubbles, beyondbrics

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