Where is China headed?
The Chinese economy is the second largest in the world, about half that of the US. It is the world’s largest importer and exporter of goods and services. Indeed, exports constitute over a quarter of their economy. By contrast, exports are only an eighth of ours. Clearly, China is a major factor in the global economic picture.
So their economy affects everyone. For example, Chinese demand for Buick automobiles was a major factor that has helped restore auto-maker GM to prosperity. In 2013 GM produced 3 million cars in China, almost half of its global auto production.
For a long time, China has had serious environmental problems. Indeed, pollution seems to be endemic to authoritarian regimes. When the Soviet Union collapsed, the scale and scope of their ecological disasters was shocking. The shrinking of the Aral Sea is just one notable example. When the same party is both regulator and regulated, it is too easy to cut corners.
Source: The Guardian
Ultimately, pollution hurts the economy. Smog makes commuting difficult; resources have to be devoted to cleaning things up; sick workers are less productive. Add the Chinese environment to their overcapacity, deflation, rebalancing, and corruption—all economic headwinds.
Nevertheless, China is expected to add more to the global economy this year than the US and Eurozone combined. The economic potential of a billion people rising out of poverty is tremendous. Anyone investing in China should be clear-eyed about the risks. Undoubtedly, their market will be volatile. But volatility creates both danger and opportunity.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!