First, it depends heavily on rapid growth in foreign demand.

Long term growth depends not on foreign demand, but on domestic supply.

But if external demand lags, products accumulate, prices decline, and profits fall.

China s GDP growth fell dramatically, owing to the collapse of external demand.

The impact on growth will almost certainly be negative, even if domestic demand compensates fully for the decline in external demand.

The bad news is that Asia seems to be learning little from repeated external demand shocks.

It moves economic growth away from a dangerous over reliance on external demand, while shifting support to untapped internal demand.

Indeed, China s dilemma is emblematic of one of developing Asia s greatest challenges the need to tilt the growth model away from external toward internal demand.

Indeed, the central challenge of economic development is not foreign demand, but domestic structural change.

But the increasing external demand continues to drive production and undermine the creation of sustainable and competitive alternative means of livelihood.

As such, this what if is a cautiously optimistic assessment of the downside risks stemming from weak external demand.

Devaluation renders exports more competitive, thus substituting external demand for the domestic demand that is being compressed.

Adding to China s labor woes, the financial crisis during the last two years had a disastrous effect on foreign demand.

In principle, foreign demand, especially in high growth emerging markets, could make up some of the difference.

A shift to external demand is not there for the asking. It must be earned by hard work, sheer determination, and a long overdue competitive revival.

Somewhat faster demand growth in Germany and a lower external surplus would help not only Germany s trade partners, but also German savers.

Demand is therefore being drained out of the eurozone economies, with stronger external demand, stemming from the euro s depreciation against other major currencies, unable to offset the effect on growth.

Rebalancing also involves a global demand switch from external deficit countries to those running large current account surpluses.

Faced with sluggish external demand, weak domestic consumption, rising labor costs, and low productivity, China depends excessively on investment to drive economic growth.

External demand in the second half of 2011 is unlikely to be strong, owing to the shaky global recovery.

Reducing dependence on external demand for example, by promoting private sector investment and encouraging household expenditure is crucial.

It is necessary because persistently weak global growth is unlikely to provide the solid external demand for Chinese exports that it once did.

They have to cut wages, pensions, and other costs in order to achieve the same gain in competitiveness needed to substitute external demand for internal demand.

And yet reliance on external demand remains fundamentally unchanged, even as the contribution of net exports to GDP growth has turned negative.

But now growth rates for Chinese exports and related indices in manufacturing have fallen, largely owing to weak external demand, especially in Europe.

The 70 30 split underscores the challenge the US must face up to a fundamental rebalancing weaning itself from excessive reliance on internal demand and drawing greater support from external demand.

The driving force is external demand, as Germany, the world s second largest exporter, profits from the global boom.

Despite all the talk about the coming shift to internal demand, China remains heavily dependent on exports and external demand as major drivers of economic growth.

But internal European Union studies indicate that European exports are more closely linked to changes in external demand than the euro dollar exchange rate.

All of the major emerging economies face weakening external demand, but India s slowdown has been exacerbated by a drop in investment that reflects a deeper loss of official direction and business confidence.

To be sure, developing countries differed often markedly in their capacity for fiscal stimulus to counter the loss of external demand.

Weak external demand is partly responsible for the falloff in growth, but internal factors namely, slowing investment and stagnating consumption are also holding back economic expansion.

Today, by contrast, although domestic investment is growing very strongly, external demand has not recovered to its previous levels.

America needs to expand its share in external global demand, which requires public sector investment, structural change, and improved competitiveness in the tradable sector.

After the global economic crisis weakened external demand, which sustained China s unprecedented economic growth for three decades, the authorities agreed that internal demand, especially domestic consumption, must become the country s new growth engine.

Indeed, many of these countries remain vulnerable to volatile commodity prices, financial system weaknesses, depressed demand from world markets, and shortfalls in external finance, overseas development assistance, and investment.

With China s trade to GDP ratio and exports to GDP ratio already exceeding 60 and 30 , respectively, the economy cannot continue to depend on external demand to sustain growth.

But slower growth in China can continue to sustain development only if the economy s structure shifts from external toward internal demand, from manufacturing toward services, and from resource intensive to resource light growth.

The post crisis era is likely to be characterized by lasting aftershocks in the developed world undermining the external demand upon which China has long relied.

But if those reserves mainly take the form of dollars, then their rising demand allows the United States to finance its external deficit at an artificially low cost.

So long as external demand holds up and recent growth numbers from China and the US are positive in this regard Europe s exports should continue to perform well.

If growth in the trade sector boosts that of domestic non trade sectors, then a fixed exchange rate will not put pressure on the external balance of payments as demand for imports rises.

With nearly unlimited access to advanced country markets, China can tap into global external demand and raise its GDP growth potential, as it has done for the past two decades.

External debt

Since exports and investment account, respectively, for 30 and 40 of China s GDP growth, its economy is particularly vulnerable to weakening external demand and accumulation of non performing loans caused by excessive and wasteful spending on fixed assets.