China’s Growing Concerns

BRIC nations are expanding faster and faster around the world coming closer and closer to the same similarities as first world nations. The big news has all been surrounding China yet finally they have had there slip up. Despite months of large spending accounts and huge bulk orders of commodities China has finally fallen. With falling revenue streams and rising expenditures costs projections predict that China’s fiscal deficit will rise to almost 5 percent of their GDP. This is a big shocker as many people projected only a deficit of 3 percent of the GDP. This rising debt is coming at a bad time as currently China has become the only spending nation buying up surpluses of commodities. So what does this mean for the fast growing nation? One word, stimulus. They might as well join the club with the government financing operations to help cover the rising deficit. In China, I expect market-based investment and consumption unlikely to rebound until the rest of the world, mainly the U.S., starts to recover convincingly. China also is dependent on these other nations due to the high amounts of exports this company relies on in a yearly basis. Nearly 50% of China’s GDP comes from exports and frankly the U.S. and European Nations are looking for solutions within not from exporting, dramtically effecting China’s economy. Chinese exports fell by around one quarter in the first five months of the year from the same period a year earlier. The problem is long-term I believe that China’s exporting business will never fully revive to what it once was. Barack Obama is a strong propent of U.S. based everything, meaning he wants to offer tax incentives to U.S. based companies shifting American companies away from the fad of outsorucing. If your interest in what Obama will do to combat this check out Global Trade under Obama. With this dramatic decrease, China will have to look within on solutions to the state of their economy. Already they are seeing the slowdown in the economy, in the first quarter alone China’s economy slipped up growing only 6.1% missing the 8% target the government had set. A sustainable recovery is not yet assured in China despite the government’s large fiscal stimulus package and Beijing may have little room for additional measures this year. I project government investments to greatly influence and support growth within the country in 2009. Though there are limits to how much and how long China’s growth can diverge from global growth based on government influenced spending. I mean when it comes down to it China’s economy is set up to rely on other countries to buy there exports and if these suitors are no longer there, China has problems. All forecasts are now lowering China’s projected GDP growth for the next several years due to recent news so factor this into your portfolio for those of you who are heavily invested within China as the gains might now be as high as you expect. Currently the government stimulus package has largely been directed towards brand new infrastructure projects and other fixed asset investments, raising the already very high proportion of China’s growth generated in those areas. China’s goal is to incorporate a larger amount of the nation into society not allowing them to be secluded from the outside world and raising the percentage of middle class within the country. In recent years, China has been trying to shift its growth model away from investment towards a more consumption-driven economy reducing there depending on exports. Problem is they have struggled to make progress as for better or worse unlike the U.S., China has failed to offer  social welfare which convinces households to save a high proportion of their income rather than spending money on consumer goods. I believe there are limits however on how far these infrastructure based investments can impact the country. At some point China will have to offer more of an array of social welfare to help accommodate the needs of their growing population. Through media and the internet more and more Chinese people are being exposed to the plethora of resources and opportunities the U.S. government offers to its citizens and at some point they will want the same. For only so long will China be able to block out and control there population from the outside world. An example of this was in the recent blocking of the popular micro-blog site Twitter. Another growing concern is how to accommodate the growing needs of the Chinese population. Year in year out, 10 million Chinese people move from the level of poverty, where a bowl of rice daily, is acceptable to middle class where they are going out to movies, buying cars, and going out to dinner. So will they be able to feed and support the populations growing demands? Who knows but China has a lot of growing problems on the rise so even though it might seem as such a bullish market they still have their share of growing concerns. I still believe China to be a high-growth nation I just wanted to raise the concerns to investors and potential investors.