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Always The Optimist

Actually, I don’t see myself as a China optimist. I just think the most realistic view is a positive one.

I have several questions for the pessimists. When someone says:

But we do know that the vast global network of mines, roads, agricultural development, and financial speculation built on the assumption that the old Chinese economy would grow at eight percent forever is running on empty.

I have to ask: was there really a lot of money invested on the assumption of 8% growth forever? Sure, some investing is irrational and can create over-capacity. But I doubt that any really big investors used “8% forever” as their basis for decision making.

Is is possible that, having seen the Chinese economy grow quickly for a far longer period of time than expected, investors were acting rationally? That they risked over-shooting by a few percentage points rather than under-shooting because it made sense in an economy that consistently grew faster for longer than had ever happened in recent history?

And does it really matter? So what if the Chinese economy doesn’t grow at eight percent a year? If it keeps growing at all, but on an ever-increasing base, won’t a lot of that demand materialize sooner or later?

But we have not yet hit bottom. The new reality of a much slower growth in China’s demand for basic manufacturing inputs is still young and its impact is only now beginning to be felt.

But…what if it is a good thing that there is “slower growth in China’s demand for basic manufacturing inputs?” What if that just means that, as China’s productivity is growing and its economy is maturing, it’s moving out of basic manufacturing?

That would mean China will demand many more goods produced from “basic manufacturing” relative to the goods it’s producing in basic manufacturing. That sounds like lots of imports to me. Those imports will have to be produced somewhere–probably they will be spread over a number of smaller economies that are able to gain comparative advantage in the manufacture of basic goods.

Really, which is more likely: that global demand for “basic manufacturing inputs” will move from China to…nowhere? Or from China to Bangladesh, Vietnam, India, Ethiopia, Tanzania?

Will that really be a bad thing?

For anyone?




Categories: China, International Trade
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