Wednesday, 6 July 2016

Is China's Economic Growth Dead?

Much is being said about the slowing down of growth in the Chinese economy. In addition to the comments made on the direction of their slowing GDP growth there is also concerns of the reported debt levels and the many ghost cities being built. The questionis : Is China Economic growth dead?

The GDP in China between 1961-1964 moved from -27.3% to 18.3% which would be a 45.6% swing over a period of three years. When you examine the annual GDP growth rate of the Chinese economy you will realize that over the last fifty years the Chinese GDP oscillate in a swing like fashion with up and down periods. At a glance one would suspect that three to five years is a good metrics to anticipate a upward or downward movement of the GDP in the Chinese economy.

Over the last twenty years China's GDP has been hoving around the ten percentile (10%) an average with the lowest GDP in any one year being 7.3% in 2014. China has had more years above nine percent (9%) than lower GDP years below nine percent (9%). Speaking of lowest years, over the fifty years there were only eight separate years that Chinese economy experienced less than a five percent (5%) GDP growth and that is almost twenty five years (25) ago. World Bank data referenced.

Looking at those up and down swings, your next question should be, what accounts for this GDP mood swing in GDP China? These answers could be posited as provided could be possibly answer to these questions.

In 1978 Deng Xiaoping visited Singapore and saw the Singapore model of economic development and fell in love with what he saw. He went back home and decided to copy what he saw in Singapore and started building out housing for the Chinese population or what some would later call urban construction in building cities. The economic pundits call these cities ghost town because the scarce or parsed occupation of the existing stock of housing inventory. This stock of housing inventory is not existing in isolation to a long term plan economic growth strategy. Domestic growth will eventually pick up as the Chinese people move across the country's landscape to redeploy the population and its economic needs.

I would humble put to the economic pundits that during the Chinese cultural revolution in the 1950s there was a population shift from urban to rural. Since those years many ago, the Chinese people have been moving back and forth to the rural areas from the main cities to celebrate their holidays. There families remained there while the young strong members of the family went out to work in the cities and return with the money to sustain the family.

 Now the cities have come to the rural areas in the form of housing inventory and putting pressure on the rural land space generally reserved for agriculture to provide food security the concerns shift now to a larger problem. Food security has little or almost no guarantee without a strong water supply and that makes for a double whammy. So, again the Chinese government has chosen to follow best practice by looking at Israel's model of drip irrigation and agricultural practice to improve their own to assure themselves of the ability to feed themselves.

Building dams and resurrecting dried out lakes are just a few attempts at address the water issue which is a major national food security problem. The cleaning of the polluted rivers is becoming an issue to deal with thus making China more environmentally aware and compliant in its industrial practices.

Each economic transition or shift in China comes with an inevitable GDP swing of some sort. Beside the food security issues and the crisis with the water supply, the Chinese national debt also poses a treat and also account the GDP swing too. The Japanese spent their economic surplus on US acquisitions doing so with the intention to preserve their wealth, but you will notice that Chinese on the other hand has not copied that exact model, but instead has done something different though not totally. the Chinese have gone into the less developed economic with their cash and has secured long term deals to fund infrasture development where it suits them while at the same time invested some in the US. A case of not putting all the eggs in one basket.  Is this global diversifcation or what?

One post can not cover all my observations so I will stop here. Next time we may talk about the one thing in China that has not been experiencing the GDP swings. That is the military spending and the steadfast desire to defend the domestic territory. This time around the Great Wall of China is different and their Great Wall in the internet firewall they have in place.

Focus InSight:
So in summary, China's GDP economic swing may be a subject of its ability to redistribute its population and feed its people while at the same time defend its domestic territory and grow the economiy while it manages its national dedts.

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