Is China about to plunge the world into recession?

Moneycontrol Bureau"Over the past 50 years, there has been a global recession once every eight years, on average, so the next one may be brewing," wrote Morgan Stanley's Chetan Ahya in a recent, much-publicized Wall Street Journal column. The piece sent ripples through the financial world for suggesting that for the first time in the longest time, a 'Made in China' global recession may be around the corner.The signs, Ahya wrote, are clear. After having taken over the US' role as the largest driver of global growth (33 percent for China, compared to 17 percent for US), any downturn in China is likely to send the world economy into a tailspin.And signs of a Chinese downturn are all around: its property market is deleveraging, the stock market is trapped in what many believe is a classic bubble burst and the real economy has seen capacities built up to counter the 2008 slowdown now proving to be excess and taking a toll.To be sure, the current crisis has roots in the 2008 crisis. As the US plunged into the Great Recession, China -- the emerging superpower which had earned its riches through from the 1980s to the 2000s by manufacturing for the world -- embarked upon a debt-induced, investment-led stimulus that was said to have then saved the world from the brink of financial apocalypse.For many analysts, China was taking advantage of the 2008 slump in commodity prices to buy on the cheap and use it to add to its infrastructure. For others, it was the first 'hello' after it had joined the global superpower club.But the problem was only one. The investment-led stimulus sent commodity prices soaring but it added to its single-largest problem: its trading partners, largely the still-deleveraging western world, could not continue to import from it at the same level as before."A lot of the growth we’ve seen in China these past several years has been bad growth that is harmful to the global economy, having created huge overcapacity and adding to a global glut of supply versus demand," Patrick Chovanec, MD of New York-based Silvercrest Asset Management told Foreign Policy magazine in a recent interview.To make matters worse, other exporting competitors such as Japan and those in Europe entered a devaluation race that saw their currencies depreciate 40 and 20 percent, respectively.The result: the coming together of a perfect storm.There are, however, some silver linings to the cloud. The Chinese slowdown has caused a slump in commodity prices, which should come as an immediate boost to consumption, both in its own country as well as the developed world.Silvercrest's Chovanec told Foreign Policy that Chinese consumption -- an economic model that the country has shown signs of wanting to adopt -- has held up well so far."In the face of an otherwise wrenching economic adjustment, China can become a source of much-needed demand and a true growth-driver for the world economy," he said. "[But] the correction taking place in China is essential to making that happen."But as Morgan Stanley's Ahya wrote, Chinese leaders -- with their constant market interference, first with the economic stimulus, and then with housing and stock bubbles -- "are unwilling to accept that downturns are perfectly normal even for economic superpowers" and exacerbating their problems.