Real Estate Bubble, India, China, Oil

Had the US real estate bubble burst happened instantaneously, overnight China would probably suffer a little bit more than India. China's domestic consumer spending is 42% of GDP and India's is about 65%. China mostly exports manufactured goods and US is its biggest export destination (about 23% of total exports). India is more of a service economy and its GDP on a percent basis depends less on its exports to USA.

I don't think hyper-inflationary recession is possible in US in today's globalized economy. Producer has lost pricing power and labor has lost negotiation power. In the impending deflationary recession, consumer spending will go down for sure and that will hurt Chinese manufacturing exporters. However, on the service side, we are just beginning to scratch the surface as far as service outsourcing goes. Companies will stand up in queues to send more jobs overseas in a recession. India will gain more from this than China.

However, compared to India, China has a lot more investment and dollar reserve, much better infrastructure and the advantages of dictatorship - no need to manage a coalition of diverging interests and think about winning the next election. Since the bubble burst and the resulting deflationary recession will be long drawn rather than instantaneous, Chinese leadership should have enough time to plan accordingly.

I worry more about US. If US is not able to create decent employment growth (excluding construction and mortgage banking sectors) and equity investment inflow when GDP is growing, what will happen when the bubble bursts and economy is in a recession?

With US in a recession, both China and India will have to focus on domestic growth which will require a lot of energy. So I do not see oil price going down much.