Monday, July 15, 2019

Economics: China Debunks The Skeptics Again

(Drivebycuriosity) - If we believe the media, China is in a deep mess. Western media, banks, hedge funds and many pundits are drawing a gloomy & racist  picture of the "people`s republic". China skeptics - including New York Times columnist Paul Krugman - have been banging the "China-will-crash-drum" for years. But the reality disproves the gloomy predictions. Last night we we learned that the Chinese retail sales jumped 9.8 % year-on-year in June, faster than in May (plus 8.6% ). This is the strongest retail growth since May 2018 (chart below source ).


China's industrial production accelerated to a growth rate of 6.3% year-on-year in June 2019, following a 5.0% rise in the previous month and beating market consensus of a 5.2%  gain (industrial). 

The numbers prove that the huge country is continuing her secular catching-up process, which is fueled by extreme income & wealth differences to the US and other Western nation values. Today China has about $8,800 income per capita, the US number is $59,500 (worldbank). China doesn`t have much commodities but it owns a huge amount of human capital: 1.4 billion people who are intelligent, who work hard and save a lot 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). The fast expanding knowledge is driving science & innovation, raising productivity and fostering economic growth (washingtonpost). Chinese corporations, think tanks & administrations can employ a large number of highly dedicated & educated people - a strong driver of economic growth (scottsumner).

China`s growth is fueled by a rapid transformation process.  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. In the US consumer spending is the engine of the economy. China is on the way to became a modern economy. Many peasants are moving to the huge metropolitan centers which are spread all over the huge country to lift their standard of living. This creates a fast rising affluent middle class, giving consumer spending a boost as the strong retail sales demonstrate.

China´s growth gets tailwinds from the technological progress and advances of Internet, automatization of industrial production and 3D-printing. These developments raise efficiency and  productivity of China´s economy. It seems that China`s economy also is getting tailwinds from fresh stimulus measure: In January Beijing announced tax cuts “on a larger scale” in order to boost business activity and The People's Bank of China injected more money into the market via a targeted cut of the reserve requirement ratio.

The swift retail growth is raising China´ s importance for the global economy, which is increasingly fueled by Chinese imports. The consumption power of 1.4 billion Chinese population becomes more and more the growth engine of the global economy.

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