Is it Doomsday for the Economic Super-Cycle?

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Global Trade, Macroeconomics

If somebody would have posed that question to me a year ago I probably would have said, “huh”? On the other hand, a friend of mine a little while back said to me that she personally thought China was poised to “take over the world.” At the time, I thought she was out of her mind, not because China wasn’t booming (it was) but because a country with the population of China’s has an awful lot of mouths to feed. And even though the number of people that live in China’s cities rivals the entire US population, it still leaves over 700m people in the China countryside. And for those of you who have not been to the China countryside, suffice it to say, it is still a 3rd world. And therein lies the problem.

With everything at stake, as I previously wrote here, the super-cycle seemed on solid ground, particularly because the stakes are so high. But today we will share three articles which raise some doubt on China’s ability to sustain an economic super-cycle. The first article comes from The China Sourcing Blog, which compares the net worth of some wealthy Italians versus the wealthiest Chinese (apparently the Italians lost more in terms of net worth than the wealthiest Chinese). But that obscures the rather dire points the author goes on to make about the Chinese economy. Specifically, China’s automotive export industry has been hit very hard along with trade finance issues putting a damper on steel and heavy industry exports. In addition, the article sites problems with the Pearl River Delta region famous for its electronics and toys. That region stands to lose 2.7m factory jobs alone! The main area of concern for China relates to the needed development of China’s domestic demand of products, services and innovation. And this was the upbeat article.

The second article, from the well-read blog, All Roads Lead to China covered the recent Canton Fair which was more like a Rolling Stones sold out concert than a ghost town which is practically how Richard Brubaker the author described this year’s affair quoting AP “It is amazing how empty it is…it’s frightening,” said Christopher Devereux, a British businessman who has been attending the fair for more than a decade.” All of our contacts confirm that export activities are down significantly and domestic opportunities are difficult to come by creating a double-whammy effect.

The third article comes from Forbes and is probably the most dire of the three. The author, Gordon Chang (who also authored the book the book“The Coming Collapse of China” believes China will endure both a “long and deep recession.” He cites several factors as already contributing to this state including: a shutdown of over 10,000 factories in the Pearl Delta region, poor global demand for Chinese produced goods, and low domestic consumption as a percentage of the economy. (The economy has declined from 1978-2002 from 60% to 35% (though whether or not that is significant remains to be seen)

Will China become obsolete as Chang writes? Somehow we doubt it but other countries have launched ambitious development programs that for some reason or another failed to materialize. This is one story we’ll continue to follow.

–Lisa Reisman

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