By Linda Yueh

Record falls in Asian stock markets show that confidence, or the lack of it, knows no borders in a globalized world. This does not, however, mean that Asia is without its own growth drivers in the shape of China and, to some extent, India.

The dramatic falls in Asia, which triggered subsequent declines in Europe, underline doubts over the exposure of Asian banks and financial institutions to a crisis that began in the United States. The US and British rescue plans may have somewhat stabilized markets, but continuing volatility in Asia can only undermine stability on the bourses of Wall Street and London.

For much of developing Asia, the US remains the main export market - leaving those economies to a large extent susceptible to the vicissitudes of US markets. And yet, while no country is immune from financial contagion, Asia does have independent engines of growth. India, for instance, only accounts for about 1 percent of world merchandise trade and its own consumers provide much of its growth.

More telling, however, is China, given its importance in the global economy. The IMF estimates it overtook the US as the largest engine of growth in 2007, and contributed about a third of global economic growth in the first half of 2008.

Recent years have seen a growing emphasis on Chinese trade surplus. Despite official estimates recording a halving of exports in the third quarter, however, real economic growth was recorded at 9 percent per annum - that is, the halving of exports cut the growth rate by 1.2 percent. It follows, therefore, that were Chinese exports to fall to zero, China would still grow at 7.8 percent. Such a figure is inevitably imprecise, but it squares with China's strong growth rate before the big economic opening of the 1990s.

Consumption in China accounts for half of GDP, which has room to increase, particularly if the government pays more attention to consumers in rural areas - the majority of the population - where better social welfare provision would reduce the motive for precautionary saving. Saving is likely to remain high in China, but a modest reduction will help to decrease the investment rate, which is fuelling asset bubbles in the country.

The state ownership of China's banks means recapitalization can be rapid. Indeed, nearly all of the large banks have received sizeable injections in the past from China's foreign exchange reserves, shrinking the bad loans on their books. Industrial and Commercial Bank of China's profit might have been down, but it was still 25 percent.

Burgeoning Chinese domestic demand will serve as an engine of growth, boosting the countries and companies in Asia and elsewhere that are selling to its market. Although the crisis will cause concern in China, its government also has the funds to support its economy after several years of impressive growth.

No country is immune from the financial crisis, but some will be better sheltered. China may well emerge with a strong set of domestic growth drivers as a result.

Linda Yueh is a fellow of and Research Lecturer in Economics at St Edmund Hall, Oxford University.

(China Daily via The Guardian November 4, 2008)