Showing posts with the label China

Will China Experience a Prolonged Period of Slower Growth?

China's greatest asset to growth was its cheap manufacturing base that drew investment and interest in low cost alternatives. Globalization is stripping China of this advantage as other nations find their own competitive ground. China will need to adjust its economic strategy to help it find sustainable growth that doesn't rely heavily on foreign capital accumulation. Changing their investment policies and encouraging long-term solutions will be more helpful than short-term strategies in the next phase of China's economic life. China has been known as a great place to produce products because of a business friendly government, lower labor costs, and less environmental restrictions. This cheaper cost alternatives encouraged foreign companies to outsource simple manufacturing of parts to Chinese companies. This create a net influx of foreign dollars that fuel growth over the past couple of decades. The country's production capacity was based on its ability to partne

As World's Largest Economy Does China Gain New Advantages? Should We be Worried?

For the first time in decades the U.S. is no longer the largest economy in the world. Despite industry experts throwing up red flags for years the inevitable happened. According to new data by the IMF the total output of goods and services by China is $17.6 trillion versus $17.4 trillion for the U.S. This leaves experts scratching their heads and wondering how this could happen and what it means for the future. Should we be worried? Resource Advantages : With China accounting for 16.5% of the world economy in terms of real Purchasing Power Parity (PPP) and the U.S. at 16.3% of PPP it means that China has a little more leverage in their treaties and purchasing behavior. They will be able to obtain and receive resources at a slightly lower rate than the U.S. giving them an economic advantage. The advantage they have in obtaining cheaper resources for their manufacturing can be sufficient when systematically applied across multiple industries year-after-year. A few cents

China Stimulates Economy to Keep Deflation at Bay

Experts predicted the Chinese economy to slow down for the last five years but it never happened-until now. Instead, the economy continued to grow and develop moving from copying technology to inventing some of their own. As the world’s No. 2 economy it has recently recognized that significant slowing in Asia and Europe may be hampering its own growth and it is taking precautionary measures to prop up its position.  In an attempt to support development and investment it slashed interest rates at the time when American’s have weaned themselves off easy money policies. By injecting credit into their financial system they hope that their banks will lend more money and encourage higher levels of investment. The interest rate on the one-year loan has been reduced to 5.6% while the rate of pay on a one-year savings rate is now 2.75%.  A low interest and saving rate combination incentivizes borrowing money for growth while discouraging the hoarding of cash by more profitable busi

Is China’s at Risk for Deflation?

For the past two decades China has been growing at a remarkable pace year after year shocking economists and rewriting economic theory. It appears that the Bull Run has just about come to an end. According to the National Bureau of Statistics in Beijing the factory-gate prices fell for the 32 nd month in October. Likewise, consumer prices were also stagnant. Some economists are arguing low inflation, low capacity engagement, and high inventories may lead to deflation.  The Chinese government is debating infusing some of its own capital into the economy in much the same way as the U.S. and Europe. The methodology may be somewhat unique as expanding production without significant household consumption or willing international buyers can be difficult. China’s economy could be experiencing the first signs of “burn out” as consumers across Europe tighten their belts. As prices and products become cheaper there is some risk of deflation. Deflation is seen as a very destr