Economics: Why China Survives The Trade War Better Than Her Opponents Think

(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 8% year-on-year in December (chart below).

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China's industrial production grew 6.9% year-on-year in December, accelerating from 6.2% growth in November and 4.7% growth in October. This was the sharpest yearly growth in industrial output since March last year, amid government support to prop up demand (chart below).

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The numbers prove that the huge country is continuing her secular catching-up process, trade war or not. China`s growth is inspired by extreme income & wealth differences to the US and other Western nation values. Today China has about $9,800  income per capita, the US number is $62,600  (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.

The robust numbers from this morning suggest that China weathers the trade war better than her opponents think.