Thursday, April 14, 2016

Economy: Don`t Depreciate China

(Drivebycuriosity) - If we believe the media China is about to crash. But the reality refutes the gloomy predictions. This morning we learned that China`s economy (gross domestic product) grew 6.7%  in the first quarter from a year earlier (bloomberg). Retail sales rose 10.5 % a year earlier in March and industrial production expanded 6.8%. Both numbers were better than in the January/February period before (charts below, source  trading  trading ).

The data show that China manages the pursued soft landing. The country is transforming from an industrial & export-focused economy into a modern system like the US, where most of the GNP is fueled by consumer spending. The strong retail growth - stronger than production & export - indicates that China`s transformation makes progress.

                                                Secular Catching-Up Process

I believe that China`s economy will even get better in the coming months. The huge country is still in the begin of a secular catching-up process which is fueled by extreme income & wealth differences to the US and other Western nation values. Today China has about $7,500 income per capita, the US number is  $54,600 (worldbank). China doesn`t have much commodities but there is a huge amount of human capital: 1.3 billion people who are intelligent, the Chinese work hard and save money to achieve a better life.  Wikipedia counted in 2014 already "2,236 colleges and universities, with over 20 million students enrolled in mainland China" (wikipedia). This fast growing knowledge is driving science & innovations.

And Beijing is continuing reforms which the government had started in 2013, including a liberation of stock trading between Hong Kong and mainland China, and announced more investments into airports, railways and other infrastructure.

China´s growth should be supported by the technological progress and advances of Internet, automatization of industrial production and 3D-printing. These developments raise efficiency and  productivity of China´s economy.  I think that the many official stimulating programs (lower interest rates, billions into infrastructure and more) and cheap oil & other commodities will generate enough tailwinds to keep China´s still exceptional economic growth alive. 

PS for illustration I chose an image of the Chinese top model Liu Wen as an example for the modern China.

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