It always seemed to me that China and their amazing growth numbers seemed somewhat questionable. I have always had a sneaking suspicion that the Chinese would run out of steam just like the Japanese did in the late 1980′s. So now there is some evidence that the Chinese ‘miracle’ may come to an end after 30 years of growth:
BEIJING — Three numbers should suffice to give Chinese economic policymakers a sleepless night: 65.4 million, $28.7 billion and $2.45 trillion.
In order, they are the estimate by a government researcher of how many apartments stand vacant in China, many of them bought as speculative investments; the country’s trade surplus in July; and the international reserves the central bank has accumulated by buying dollars to hold down the yuan.
Together, they encapsulate the distortions of an economy that favors investment by suppressing the cost of capital and other inputs at the expense of consumers, whose spending power is held down by low wages and low deposit rates.
Unable to sell at home all that it produces, China exports the rest…
…This template has powered 30 years of headlong growth that is catapulting China past Japan to become the world’s largest economy after the United States.
But it is a formula that Beijing readily agrees is unsustainable: China needs to rely more on household spending, especially as its export prospects are darkening now that the West is tightening its belt to purge excess debt.
Many experts are confident that a pragmatic China will succeed in making the transition in the coming decade to a new growth model anchored by urban-based consumption, technological upgrading and a greater role for market forces.
Buy buying dollars, the Chinese have managed to hold down the value of their Yuan. By forcing the value of the Yuan down, this makes exports, especially to the US, cheaper and more marketable. In effect, this is the Chinese exporting unemployment. The problem with an imbalance as noted in the article is that as the West and America tighten their belts and consume less, the export market in China can crash, leading to unemployment and other economic problems. The trick for the Chinese is to increase domestic consumption, which is going to be a problem because of the resistance of the entrenched interests and the desire of the Party to retain control.
This situation is something to keep an eye on. Watch for the term ‘China Trap’ to start making its way around the economic circles.