Can the Chinese miracle continue?
Sometime in the next 50 years the Chinese economy could equal that of the US. This is astounding, considering that as recently as 1990 their economy was only equal to 6% of ours. It’s now number three in the world and the size of almost one third of our economy.
What have they done right, and can it continue? Within the context of central planning, the Chinese leaders have unleashed entrepreneurial spirits by encouraging exports, building infrastructure, and liberalizing labor laws. As a result, about 300 million workers have entered the global market.
But can their export-driven economy continue to post double-digit growth? By focusing their economy on western consumers, the Chinese were able to hitch themselves to the American and European economic engines. But consumption growth in the West has slowed as a result of deleveraging and reregulation. So what will happen to their export machine?
Well the short answer is their economy has to shift from exports to consumption. That’s not so easy. The Chinese save a lot because they have no social safety net: no pension, no health insurance, no welfare. If you’re hurt, you’re out of luck. So the government needs to develop their social infrastructure just as they built out their physical infrastructure over the past 20 years.
Can they pull it off? Maybe. But this new phase has profound investment implications.
Douglas R. Tengdin, CFA
Chief Investment Officer
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