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According to the National Bureau of Statistics, the Chinese economy grew at a rate of 7.7% in 2013. Its GDP grew at exactly the same rate. Hey, a 7.7% growth in either of those categories is considered enviable by many. On the other hand, I think that I recall hearing about certain Western governments (and a few Eastern) trying to control their growth rates somewhere around 2.0%. The question would be, “Is 7.7% good or is it bad?” The answer is “Yes.”
If you actually read the NBS report, it all sounds good (kind of like the spin that companies put on quarterly operations and financial reports). Look at the bullet points in the official report:
- 农业生产得到了另一个收获
- 工业生产稳步增长
- Agricultural Production Got Another Harvest
- Industrial Production Grew Steadily
- Investment in Fixed Assets Kept a Comparatively Fast Growth.
- Sales on Domestic Markets Enjoyed a Steady Growth
- The Growth Rates of Imports and Exports Picked up to Some Extent
- The Growth of Consumer Price Remained Stable
- Residents’ Income Continued to Increase
- Money Supply Maintained a Steady Growth
- Population and Employment were Generally Steady
- 2003: 10.0%
- 2004: 10.1%
- 2011: 09.3%
- 2012: 07.8%
So the question remains, are the results good or bad? I believe that the question is still unanswerable. I would love to sit here at my computer and say something that will either frighten or, preferably, assure investors. There are just too many variables.
China was a sleeping giant for hundreds of years. In the past two decades the giant came out of hibernation with a fury, a nation suddenly hungry from growth. Her appetite was voracious – and we fed her. What we fed her gave her the fuel to keep on roaring and growing, even though it meant taking food off our own tables. Her own spending was akin to an new athlete breaking into the professional ranks and the big money. Spend, spend, spend. Borrow, borrow, borrow. For awhile it looked like she was going to conquer and dominate the world. Now, not so much.
From a national perspective, China has got to focus on solving the major debt problem that it has created as a result of subsidizing business growth and infrastructure development. It’s race to become the supplier to the world has cost a handsome price – in more ways than one. China is literally killing itself with pollution that it has generated by its own uncontrolled industrialization. Unless China gets a lot more focused on solving the problem it has created for itself, it is going to watch its number one resource – people – dying in droves. Sixteen of the 20 most highly polluted cities are in China. Some of those cities are now considered “barely suitable for living.”
From an international perspective, a continuing slowdown in China’s industrialization would mean a diminished demand for goods from some major sectors, the most vulnerable of which might be mining. On the other hand, a mjor course correction from being a supplier to the world to being a consumer-oriented nation, may prove to be a boon to manufacturers and suppliers of consumer products. Most of that supply can probably come from inside the countries borders by now.
So, as far as investments go, here is the summation of what I see. If the Chinese economy were to collapse, it could possibly take the rest of the world with it. If, however, the government were to focus on and address its current and impending problems, and control them, it could easily retreat into a self-sustaining entity with a significantly reduced impact on supply and demand from the rest of the world. It’s too early to call, but it’s time to be concerned.
