The Red Dragon Slowing Down?
'The Red Dragon Slowing Down' this is the latest news which is coming up within the economists. Although China is still growing at the rate of 8 percent whereas it’s counterparts in the BRIC (especially India) are facing a major slowdown. But to economists this isn’t satisfactory. ‘The Red Dragon’ which has overshadowed the whole world is now showing signs of future breakdown. Back when the millennium started everyone kept talking about how great it would be if all the economies will be interconnected and the world will become a ‘Global Village’. The words ‘interconnected’ and ‘Global Village’ seemed too fancy those days. Now, these are following you up with ‘Global Meltdown’ and ‘Global Slowdown’. This is because we are too ‘interconnected’, knit too closely and it’s more like a ‘Domino Effect’ which prevails in the world today. If one falls, then the whole arrangement does.
This ‘Domino Effect’ has hit India (and so have bad policies, corruption, high government spending etc.) and after India its next big target is ‘The Red Dragon’. The problem starts with it being the ‘production capital of the world’. China produces for everyone and after piping Germany and becoming the production powerhouse it has seen a brilliant rise in its economy but now its starting to face problems, the same which any production based economy faces after a while. What has hit it is called the ‘Wage Raise Syndrome’. China has been the ‘Production Powerhouse’ because of its ability to pay off its labour by offering them peanuts in return but now the time of ‘peanuts for work’ has ended and workers in China are demanding more wages. According to Reuters annual increase in wages is almost 10 percent a year. So now some production units in China are actually closing down now because of the increase in wage rate and their inability to produce profitably at that rate.
The other factors are the investment which China has made in the US treasury, so if there is a problem within the US economy at any point in time so the Chinese would get affected definitely their money would sink in with the United States and if at that point they start dumping the dollar, the dollar crash would be inevitable and (just to add on) if the dollar crashes then the world economy falls into a downward spiral (but that’s a story for another time). The other problem is its extreme involvement with the European Union and almost a quarter of its forex reserves being in Euros. So, now even if the European Union goes down (which is most likely) so will The Great Red Dragon.
Supporting to this is the backdoor which is opening after the $4 trillion infusion which was made by the Chinese government into infrastructure four years ago. This has led to the local governments now owning upto $1 trillion. This has been a result of lavish spending by the Local government to build up the infrastructure. Now the real estate has also taken a back seat too showing a decline in real estate prices in the current ongoing scenario and a real estate crash would be affecting the Chinese in an extremely bad way.
China which is the key buyer of the US and the European debt now looks on a ground which is shaking its way to hell. So is the Red sun setting down? Is it the end of the Red Dragon? Is it dusk for the Chinese yet? Stay Tuned.