Chinese Fortunes (Part 2)

So what would a changed China mean?

Up until now, China has invested in traditional infrastructure: roads, bridges, airports, etc. And it’s helped them grow to be the world’s third largest economy. But for China’s growth to continue at an above-average pace, they need to switch gears. Up until now they’ve levered their economy off of demand from the US and Europe, betting that western consumers would lift them out of poverty.

It’s worked pretty well. Over the past 20 years their economy has grown from 300 billion to 4.3 trillion—a 13% annual growth rate. This is an amazing feat for an entire economy. Partly as a result, domestic tranquility has generally been the rule—something that hasn’t always been the case in China

But if growth slows, this may not continue. That’s why it’s so important for the Chinese to shift their economy from being export-driven to being consumption-driven. Because after the Great Recession western consumers aren’t what they used to be. Increased savings over here means fewer exports and slower growth over there, and that could spell problems for the Chinese leadership.

But to become more consumption-oriented, the Chinese need to build out their social infrastructure: health care, pensions, and social insurance. So instead of buying tractors and cranes, the Chinese may be importing databases and insurance actuaries. Because for the Chinese to consume more, they have to save less. And for them to save less, they have to have confidence that someone will need them and feed them when they’re 64.

China knows what it needs to do to continue to grow. How it does it is another story.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T19:51:33+00:00 July 22nd, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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