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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