Monday, December 7, 2015

China is not the Problem....

Over the past couple of months china has been on the top ladder of the global economy and everyone seems to blame the economy for its huge capacity build-up which has turned to be detrimental for the global economic growth. Every one blames that the global economy will face slow down in 2016 due to Chinese economy growing for a wild toss. Commodity prices have come down and also consumption demand is slowing down in china. In a recent data around $550 billion in the year 2015 till date have flown out of china and their treasuries are depleting fast.  

Well the story have been presented with an fear sign where as the reality is that China is buying properties and other asset in other countries. The global economic slowdown created during 2008 has lead to an significant opportunity for investments in overseas assets by china as they are available at cheap price. Further china is getting more long term gain from its diversification of its reserves.  I find that Chinese economic slowdown has become a pain for the world economy as they were busy in dumping their capacities. If an economy becomes cautious in terms of its utilization of its savings and reserves is that a problem. If Chinese investors don’t invest in bonds and treasuries and invest in Indian real estate and business is that slow down. Chinese economy is the 2nd largest economy and a growth rate of 6.5+ will be sufficient enough compared to US and Europe struggling with 2% GDP growth.

If commodity prices have come down it doesn’t means china is facing slow down. You cant expect the whole world to produce and china alone to buy. The problem is with those capital market giants who are having the pain of not printing billions out of million through commodity investments. Countries like India are enjoying the low commodity prices. It’s strange that today as gas-online prices and oil process are low Americans are saving a lot and consuming a lot. US have understood very clearly that low oil prices is that path to prosperity as it leads to consumption which further leads to manufacturing growth which leads to GDP and taxation and employment growth. Well this also clears the expectation of the crude prices climbing to $ 70 or $80 per barrel. The oil war is open and US will not get for any cut down of its production and low prices leads to US recovery.  

In the coming months china might give some short term jitter as its getting ready for cutting down carbon emission and hence many factories might come to a halt or might be merged. This will create demand for capital goods as well as utilization of capital investments which will lead to a significant growth opportunity for china as well as for the global economy. At the same time good things takes time and hence it will be done over a gradual space of time.  We are all blaming china as US companies are struggling with getting profitability number on their balance sheet.  The country who steps into the shoes of cutting down carbon emission would find radical changes in its resource utilization and exploitation of resources too. This is bound to create problem for its economic growth as well as for the ancillary economies linked with that country.


The real problem is that china is not going aggressive anymore with its own stock piles of resources. Rather it is focused towards deploying its resources in other countries like Africa. The proof of the pudding is that US companies like Cummins Inc., for example, said demand for excavators in China fell 34% in the second quarter. Many of them might say that US companies have small stake in china then just tell me why you people are busy in creating a negative environment for the Chinese economy. The emerging economies are well placed and they are going good with their conservative approach.  Indian among all these remains to be the most beneficial economy which is well reflected through its CAD coming down from 5% to 1% within 3 years time frame.

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