Sunday, November 27, 2016

US ECONOMY TO SLOWDOWN IN 2017

China is going strong and For Mr. Trump its being found that that he does not have enough strength to affect any bilateral trade pacts with China. Chinese economy is value providers to the National Income of US and a strong growth provider of US GDP. On the other hand being economist I find that Trump policies might create more opportunity in an indirect way for the Chinese economy. Trump policies of cancellation of trade pacts and other restrictive policies will only slowdown the GDP growth of US economy in 2017. Even if corporate tax rates are cut down and people are thrown out of the country it all going to affect US economic growth and GDP slowdown. US doesn’t not have quality manpower and most important that if US cuts down tax rate below 35% for foreign money lying outside of US by US corporate would create little affects. Real estate business and manufacturing business have different buyers and demand creators. Mr. Trump is confused what its seems since no one will shift its business of manufacturing from Asia to US. Remember that cheap cost of production cannot be replaced with tax sops.  A government is created for 5 years but a business for 50 years. US companies have changed their production base so as to control the economies and enjoy taxation and cost benefits followed with a wide consumer market.  If US economy cuts down trade pacts and gets into restrictive trade polices then it will cost only US economy.  It’s not a real estate business.
But before we get into that story I find some important opportunities for the Chinese economy on which they are working well.The same story is applicable for all those countries based on whom US economy gets it GDP growth.

London was not the Financial capital of the world but now its seems over the next decade it will be the financial capital developed by the Asian and Emerging countries.  Brexit will be boon for the Chinese investors as their statistics reveals the same. We all know that Brexit will lead to significant cut down in Banking job and opportunities. Four of the country’s biggest banks this month agreed to finance the first stage of a £1.7 billion ($2.1 billion) transformation of an old East End dock into a hub for Asian businesses. This is nothing new. From 2010 we have witnessed that china have been aggressively partnering with various countries of EU for JV of business development, port and infrastructure development. China is one of the biggest buyers of European properties and sliding property prices after Brexit has lead to an amplified opportunity for the Chinese investors. Chinese money is also flowing into      

Residential real estate. Shanghai-based Greenland Holdings is developing Spire London, set to be Europe’s tallest residential building upon completion in 2020. This means that these construction works are also going to add demand and growth for the GDP of London.

Analyst are concerned about falling rental in the city and over supply would create fall in demand well as an economist I find it that decline in price is an opportunity for the Chinese buyers to buy the same since they are looking for long term gains from the London  as well as with other EU countries.  Over the current situation the topping of Italy’s  Referendum and if there is an exit followed with France in the long term more opportunities of trade will come up for china which is being also taken into the long term planning  of Chinese investments.

If we look at China’s investments in US we find that as of August 2016, the U.S. has already drawn $13 billion in real estate investment commitments from China. Over the last decade Between January 2005 and June 2016 the US received over $125 billion in large Chinese investments, excluding bonds. Between 2010 and 2015, Chinese buyers spent at least $93 billion on residential real estate, $17.1 billion on commercial real estate, including office towers and hotels, and nearly $208 billion of mortgage-backed securities.

Its well clear that people like Trump might come up with restrictive polices but when other countries are your neighbors living next door, the risk of stringent policies creates huge problem for the economy.  Just imagine if tomorrow China exits all its assets from US then what will be the condition of different asset class of US. China have been clever to develop these strategies since real estate have been a core part of infrastructure for the US and European markets. Any sell off will create huge panic and slowdown in construction activity since China is the demand driver and also the growth creator for these economies. Trump policies against china will create massive slowdown for the US economy and its investments since exit of china will plunge the economy and please remember that US people don’t have funds to invest in property now hence from where US will get its contribution of construction growth into US GDP growth. At the same time Chinese students, tourist is visiting more in US and Europe now. Hence they need cuisine and places of china in these foreign countries. Hence Chinese investments in restaurants, hotels are increasing. The number of international students at U.S. colleges and universities has hit a record high. Its being estimated that these international students add 35 billion annually to the American economy. Together with the U.S. Department of State, the IIE releases a report every year on the number of international students in the U.S. The 2016 Open Doors report says about 1,044,000 international students attended American colleges and universities last year. The annual rate of increase is 7.1% among foreign students coming to the United States. International students come from more than 200 countries and, according to the NAFSA report, contributed about US$32.8 billion into the US economy in 2015-16 and supported more than 400,000 jobs. 

The mathematics is simple-chine investors bring cash converted into Dollar or Pound. They spend the money at Chinese hotels and restaurants and the same is being routed back into their own country. Any unforeseen circumstances in geo-polices will not affect china in terms of its foreign holdings.


Recently we have heard that Trump will be developing Walls across different states. Well in my point of view the more walls are being created the more opportunity China and other countries will get tin developing new trade pacts and policies of investments. Hence Trump will create many separate states where foreign nationals will come up to explore the hidden treasures of these states.

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