The U.S. Economy And World Markets

How America's Slump May Be Causing Gains In China

(CBS)  I'm Barry Petersen and this Letter from Asia comes from Tokyo. Economists love using the metaphor that America is the world's single global locomotive for economic stimulus. Well, perhaps. But some are beginning to wonder if the times are changing

Since World War Two, it's been America's financial health and stock market that pulled the world forward or slowed the world when the Dow hit a bump.

But the good life is spreading. Welcome to the new Chinese middle class, spending its new found money on cars and computers. And India is going through the same transition.

Patrick Mohr of Tokyo's Nikko Citigroup explains the theory. "There's been a decoupling and {the} U.S. will not take emerging markets down with it. That, in fact, the emerging markets will cushion the fall for the U.S. And of course, only time will tell."

It's a hot word in economic circles - decoupling - as in the rest of the world economies are getting big enough to go their own way, decoupled from America's economic engine. Skeptics are not hard to find. Among them is Michael Pettis, a former banker in the U.S. and now a professor of finance at Peking University.

"We're at a worrisome period," says Pettis. "There's a lot of concern and we're grasping at straws. We would like to say, 'That's okay. If the U.S. slows down, the rest of the world will pick things up.' I'm not sure that's going to happen."

Pettis concedes that China's exports to the U.S. seem to be dropping, but he sees a far different trend that still makes the U.S. critical to China's economic health.

"If now China sells shoes to, say, Italy for processing and the Italian then sell it to the U.S., it looks like Chinese exports to the U.S. have dropped, and in fact, they have dropped," he says. "Chinese exports to Italy have gone up, but ultimately, they still require the U.S. buyer of the shoes for China to sell the shoes to Italy."

The recent stock market turmoil was as hard on Asian markets as on American 401K's, and naysayers insist that proves decoupling is far from reality.

"Under current conditions, it's hard to see who else is going to take up U.S. demand," says Pettis. "Certainly Chinese consumers are too small to make a major impact on global demand."

But consider China's economy growing 10-percent a year, and the crystal ball looks a little more in favor of decoupling.

According to Pettis, "Eventually, yes, certainly for China. It's a very very large country and a large economy. I think in one day it will probably be the second largest economy in the world. It's goign to have to depend on internal growth."

With China and India counting hundreds of millions in a growing middle class, America may no longer be the one economic locomotive. Instead, it may just be one among many.