cool down to ramp up in china

“Already the world’s biggest exporter, China may overtake the United States to be the world’s largest importer this year, HSBC Bank has predicted.”

China is changing. Quickly.

The Chinese economy may have slowed in the past year, or over the past several years, but China is still doing well. Though economies worldwide slowed during the recession, the Chinese slowdown was not nearly as bad as expected nor was it crippling. Exports to America and Europe slumped, but anemic consumption in the western world did not take a huge chunk out of Chinese growth. As the New York Times reported last month, “China said… that its economy grew 7.7 percent last year after adjusting for inflation, while the United States is expected to announce on Jan. 30 that its economy grew about 2 percent last year.” 7% reflects a healthy, expanding economy. 2% indicates struggle, contraction, and the United States is lucky to see a growth rate even that high.

Part of this continued energy stems from increased internal consumption. For some time the Chinese government has sought to develop a greater consumer economy in the country. The Chinese economy may not yet be a consumer driven economy like the United States, and the transformation may develop in fits and starts as other developments in China do, but all signs indicate that this is the general trend for China.

The growth of consumption and the middle class in China has resulted from several factors: the expansion of manufacturing and unstoppable demand from Western countries for Chinese exports during the previous decades, migration to urban centers throughout China, increased wages, and greater access to education. Now, despite a slump in exports, spending increased over 13% this past year and urban workers have 7% more disposable income.

At the same time, China luckily saw a small increase in demand for exports from Western nations this year, and the country’s trade surplus increased. This year China is seeing the best of both worlds, contributing to its robust growth rate. But increased consumerism could rapidly change the Chinese economy. As its middle class grows and demands higher wages, more manufacturing and exports will move to other countries, as they already have: to Vietnam, Laos, Myanmar, and the Philippines. China may sooner rather later be looking at some of the same labor and trade imbalances that trouble the U.S. economy.