'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.
Very well written :) China buys US Treasury bonds which is essentially its debt. Now the problem that has happened is the reduction in its buying rate is not something that has happened now. What I am trying to say is that the amount of bonds being picked up by the Chinese government have been on a decline for a while.
ReplyDeleteNow China was or rather is famous for producing millionaires but only from specific group of people. Because China is a state controlled capitalism, everyone does not get equal opportunity. The wage problem that you are talking about is going to be one major artery block for the heart of China.
Another problem i feel that they are facing is that because they are an exporter economy the slowdown will definitely affect them and the currency manipulation that they followed is biting them back in the ass because the purchasing power of europe and america are considerably declining.
I read this one report that said despite this slowdown and all China will be the worlds biggest economy by 2025-2030, that is definitely an interesting fact.