Do you know what the internal market is? You must be Vinod or related to him, go look up what the internal market is.
I am sorry, I expect better from a Think Tank designated poster...
Sire, If everything was so easily absorbable by Internal Market (or home economy), then China wouldn't have needed to bring in such a massive simulation program of their own... Don't you think so? All that extra cap-ex was to absorb some of the existing capacities and some utilized to release funds to generate more capacity by way of low cost lending, to ensure that the economic cycle keeps working.... And that eventually led a fears of a china based real estate bubble, for which the government had to again raise the interest rates to tighten the liquidity... It is one of china's biggest problem... Funding growth in times of recession, without inflaming inflationary pressures... And if your theory is to be true, then their internal market will consumer all their produce in case of a reduction in demand, which did not happen in 2008/9 and they would not have needed their own simulation program... The fact is that China is one of the most closely coupled market with US & developed world economies... Had, what you say been the case, China would not have artificially peg it's currency levels a fixed levels against USD... It needs American demand to progress
Any Surplus economy, examples being Japan, China or Germany needs a robust global demand to prosper as this demand helps them bring in more cash (investments) and that demands also helps create scale, which then helps the exporter to drive costs even lower due to benefits of scale... You turned the economics upside down and you say, internal demand will suffice... Did you even study how Germany suddenly grew so strong the moment Euro depreciated against USD.. and even then it was not able to match it's 2006-2007 growth levels because the external demand was not there and that effected the earning capability and thus spending capability of their own population, which produced a lot of stuff (read vehicles etc) for US and other developed markets...
Second, it is not only the internal demand... China's main leverage weapon is it's 1trillion dollar war chest of american bonds... That it can threaten American with by way of threating to call its loan... It can not do that because, the moment china does that, $ will dive like crazy and suddenly their investments or war chest will have no meaning... Think of the mayhem that such an action will cause to the world... All of us will be rolled back to Stone Age...
China does not have as strong a local market as its Export market, because China is fundamentally a kick-a$$ manufacturing hub and it can not consume all of it and exports majority of it's produce. Compare that to India, where reliance on export is around 30% of our produce and we consume the remainder of our manufacturing, agriculture and services locally.. an exact opposite of China, however, we seriously lack the speed, efficiency and scale of Chinese market... and that is why China's internal market CAN NOT take care of its exports quota...
I give you one more example of China's need of the west... World's total steel production is around 1400million tonnes... china only controls 35-40% of this supply and after olympics, needs only 50% of this 40% (i.e. 20% of world steel demand)...If the exports drop to zilch... The remaining 280million tonnes can not be exported and can not be consumed... You can not build inventories with that kind of a capacity... So what are the options? Reduce capacity, operate at 10% capacity, cut manpower, cut prices & thus profitability... You see the vicious cycle coming back?
I'll be happy to answer any questions on my rant! Have a good evening!