Tuesday, July 16, 2013

Economic and other growth in China

China is an enigma. A government that can never get voted out because the country is not a democracy, an economy that is forging ahead, making many new Billionaires in the process, a population that is growing so fast that the authorities feel it necessary to impose a “one-child” policy, which constrains couples at reproductive age to only have one offspring in their lives, and a fiscal and monetary relationship with that other global powerhouse, the United States of America, that must be described as ambivalent at best.

A lot of this last is due to the manipulation of the Chinese currency, the Renminbi or Yuan, by the purchase of US dollars, when required, to maintain an exchange rate that competitors for global exports in the US, and the US government, regard as artificially in favour of the Chinese unit.

When he visited Ireland prior to taking up his position as Chinese president, Xi Jinping was quoted as saying that if the Chinese economy could not maintain its growth, then the people who have flocked into the great cities of that great nation would have to go back to their villages. This is a chilling thought, as it that were to happen they could not all be supported with food and other essentials, and the result would be catastrophic.

While there are now many very wealthy people in China, there are still many who subsist at a much lower level of economic wellbeing. While Gross Domestic Product (GDP) in absolute terms may have outstripped that of many Western nations in Europe and the Americas, average GDP per capita, or per head of population, is still only a fraction of what it is in the developed world.

Australia depends on Chinese industry for the consumption of much of the minerals it produces, particularly iron ore. This has led to something of a two tier economy in Australia, where mining has been very robust resulting in an appreciation of the Aussie dollar, which in turn puts pressure on other areas of the economy because the cost of living is now very high, due to exactly that appreciation. And China has its own Iron Ore sources, which provide about 75% of its needs, leaving something in the region of 25% to come from other countries of which the leader is Australia. Now, if China decides it needs to use less Iron Ore, which suppliers will it start to reduce orders from first? Almost certainly not its own. This leaves mineral producers in Australia, and the Australian economy, in a possibly vulnerable position.

A lot depends on China in global economic terms, but it would be wrong to assume that its economy and its other national characteristics were exactly the same as we have come to expect in the West, the recent great financial crisis notwithstanding.

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