China’s Bubbling Economy vs the Boiling Point

It seems there isn’t a major publication on Earth that isn’t currently running headline stories about China, and with good reason; the shifting economic balance towards the east has taken many people by surprise, while those in the know have been trying to tell everyone for some time now. For the history buffs out there, it’s worth noting that China is currently exhibiting many of the same characteristics the USA had a long time ago, just before it took its world superpower status from the UK during a momentous period between 1920 and 1930. The American economy was boosted from upstart status to superpower for a good reason, too: the USA was the world’s largest exporter of goods and the world’s largest creditor nation. Interestingly enough, history truly does repeat itself – as we look towards China today – which exports the most goods and is the world’s largest creditor nation with over USD2 trillion in foreign currency reserves. Even the most short-sighted amongst us can see the writing on the wall, as China’s economy presses ever-closer to overtaking Japan’s as the world’s second-largest economy… and nearer still to challenging the USA for the top position.

The recent announcement that China’s GDP grew 10.7% last quarter over a year ago should get some attention, as it represents the fastest pace since 2007. In addition, speculators are predicting that China’s central bank will soon be raising interest rates in order to tighten up runaway lending within the country. China’s central bank has already shown some preparation by raising reserve requirements, and local authorities have already ordered the largest banks to slow the process of lending for the rest of this month, beginning what many analysts are calling “only the beginning” of new reforms.

Contrary to some murmuring about a full-scale collapse of the Chinese economy, it’s more likely that over the next decade certain pockets may continue to rapidly develop mini-bubbles, such as the real estate markets in and around Hong Kong, Beijing, and Shanghai. However, even if house prices in certain major Chinese cities were to substantially drop, it is important to remember that China’s economy has been built on a foundation of manufacturing, export, and savings. This will keep things from capsizing, and the consumer population of China will continue to grow at an astounding rate.

For those in the wholesale business, this should be raising their level of awareness to an all-time high. Some experts predict that China is in danger of continuing to produce huge surpluses of goods that it will be unable to sell, which already has the liquidators and volume discount buyers making their inquiries on a daily basis. China’s population of 1.3 billion people might surprise us all, as they show the world that they are capable of purchasing their own goods, even if the Chinese government abandons their currency peg to the US dollar and allows the yuan to appreciate. For those who haven’t been to China, the demand for foreign goods is huge, and unlikely to diminish quickly as consumers gain the buying power to acquire these goods, and turn consumer economies like the USA back towards being producers again, even if it’s on a much smaller scale than before. It stands to reason that the first ones to enter this market will have a distinct advantage over the rest.


Author:  Rueben Marley

Based out of China since 2006, Rueben Marley has a unique and first-hand perspective on what's shaping the industry today. Learn more about Rueben's career by visiting his Linkedin profile at http://cn.linkedin.com/in/ruebenmarley


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