Why read: To test the contemporaneous views I expressed four years ago, to observe similarities and differences then and now, and to determine if you agree with my current views.
Commentary then: On July 31, 2009 I commented as follows:
An article today titled 'Is China Leading a Global Recovery says:
"increasingly, many companies see China as their ticket to surviving--and even thriving--in a post-recession world because of its insatiable appetite for goods as it moves toward a consumer-driven economy"; and,
"a lot of people are starting to believe America and China are in two very different boats" and includes interview comments with executives of major companies - at least one of which is quoted as saying: "Is China going to lead the global economy out of this slump? I wouldn't think so".
For the following 20,000 foot reasons that is the camp I am in:
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first, from everything I have read I believe it will take China many years to develop a consumer based economy that will to an important degree be significantly internalized and self-sufficient;
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second, I think the current developed-world economies that have the best chance of enjoying long-term growth and prosperity are those that are rich in resources and low in population - examples include Australia and Canada;
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third, the U.S. is still the world's largest consumer economy and will remain so for some time to come. That said, the U.S. has lost so many (I think irrecoverable) manufacturing jobs it has become and will remain an increasingly dependent service based 'consumer economy' - in circumstances where little economic comfort and growth is going to come from Americans selling hamburgers back and forth to each other; all of which
leads me to the conclusion that continued growth in China does not necessarily mean recovery in the U.S. Perhaps near-term growth in China will bear on U.S. economic recovery in a more significant way than it will in the longer-term, but at the end of the day I simply don't see how the U.S. is going to enjoy meaningful economic recovery and ultimately:
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eliminate its annual budget deficits - no person or country can forever deficit finance;
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achieve an appropriate alignment of its net trading balances; and,
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achieve an appropriate alignment of its Cumulative National Debt
without creating jobs big-time resulting in its consumers spending big-time.
As much as I would like to conclude those things are a possibility for the U.S. going forward, I am not optimistic about such an end-game.
The referenced article concludes with this statement: "Are the Chinese amazed that we're still stuck in recession? That's right. They're holding all the cards and will continue to do so. There is a feeling here that China is still stuck in some kind of Third World mentality. It's not. It's a superpower". I would qualify that statement somewhat. I would say a 'budding superpower' with a probability of the word 'budding' disappearing in the next 5 - 15 years.
Commentary now: Today's China's GDP growth has abated somewhat from levels that country was experiencing three years ago (down from about 10% compound per annum to about 7.5%), with some attendant concerns that China is beginning to have its own internal economic issues. That said, if China's statistics are to be believed, it is still growing at a rate that is multiples of the current GDP growth rates being experienced in the developed countries.
In essence, where China is viewed in the context of America and other developed economies I see no reason to change my view of China today from what it was three years ago.
