Science and Technology Development

For European firms producing relatively sophisticated, high-tech machinery, China’s domestic market is their main target for the long run.

During the rollercoaster ride of the past week, I was in Europe talking about China. The financial meltdown provided an interesting backdrop to our discussions. I went primarily to talk about long-run issues, especially energy use and environmental degradation. But the turmoil in financial markets naturally brought the conversation to the short run.

A group of Swedish bankers and industrialists with long experience in China was cautiously optimistic about prospects for China in the near term. No one buys into the idea of “de-linking”—that is, they all thought that China would be affected by the global slowdown. But the exposure of Chinese banks to the failing institutions in the West is minor. So, there will not be much direct impact of the financial crisis on China. There will, however, be an indirect effect. Clearly the U.S. economy is in for a period of no or slow growth, and Europe and Japan have slowed down as well. This will inevitably have spillover effects for China.