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Look what’s happening to China’s economy

We all know how dependent the Australian economy is on China’s economic growth, so the latest growth figures for the People’s Republic of China (PRC) are very encouraging.

You know it wasn’t always that way….

When I first started investing we were very  dependent on the American economy. There was an old saying “When the US sneezes Australia catches a cold.”

Boy how things have changed. Anyway…China’s annual trade was more than $4 trillion in 2013.

That pushed the PRC ahead of the United States and gave it standing as the world’s biggest trader.

According to The New York Times, China’s annual trade surplus, in U.S. dollar terms, was the largest since 2008 and 12.8 percent ahead of 2012’s surplus.

 

In other words, China exported more than it imported.

US financial planner Hawley Maclean (who happens to be my wife Pam’s brother in law) suggests:

“China appears to have taken the words of American industrialist Henry Ford to heart. Ford said, “There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.”

It’s interesting to note imports to China increased significantly.[sam id=37 codes=’true’]

In fact, imports rose more than exports which reflects strong domestic demand, according to an expert quoted by CNBC.2 That demand may have been driven by rising wages and a growing middle class.

The New York Times wrote:

“Export gains… suggest that despite years of predictions of trouble for China’s export juggernaut, it has not yet been derailed by fast-rising costs for blue-collar labor, by an appreciating Chinese currency, or by foreign investment shifts toward other, lower-wage Asian countries… Blue-collar pay has soared between fivefold and ninefold in dollar terms in the last decade, wrecking China’s reputation as a low-wage place for export-oriented manufacturing… A decade ago [a company] paid about $75 a month for entry-level industrial workers and provided virtually no benefits. Now, [a company] pays $570 a month plus $100 a month in government-mandated benefits.”

The Economist forecast China’s economy will overtake the United States’ in 2019 if economic growth averages 7.75 percent a year in China and 2.5 percent in America and inflation averages 4 percent and 1.5 percent, respectively, between 2010 and 2020.

In late 2013, the Organization for Economic Cooperation and Development forecast growth in China would accelerate to about 8.2 percent with 2.4 percent inflation during 2014, according to Reuters. Growth in the United States is estimated to be 2.8 to 3.2 percent with inflation of 1.4 to 1.6 percent for the year, according to the Federal Reserve.

[post_ender]



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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