Economic Dilemma for China Investors

Economic Dilemma for China Investors Determining if China’s economy is on the rebound or on the skids seems to be more difficult than just understanding quarterly reports.  China supported by New York’s CBB-International reports of higher than expected revenue growth for 2012.  The World Bank stated that China’s growth was an overall 7.9% for the year.  Forbes’ economic experts detect a looming problem that could quickly spin out of control for investors and consumers worldwide.

China’s Pronouncement of an Uptick

At the Forum on China’s Economic Outlook in Beijing held at the end of 2012, China’s “Father of Venture Capital” Cheng Siwei urged the government to increase the timeline set forth in the 2008 government directed spending program.

Beijing’s general plan is to transform their economy from one that is a foreign investment driven export-heavy model to an internally led consumption-based model. Their attempt is to make this turn gradually without a major growth decapitation occurring.

According to China’s internal surveys, retail growth with 61% of retailers reporting higher sales.  The growth was spotty most noticeably in the north coastal, northeast and central provinces.  Shanghai and regions in the south and south central saw dips in their sales.  The largest increases were seen in the interior provinces where retailers had failed to focus attention.  An increase of 30 – 32% in stores with an eCommerce presence is suspected to be an underlying factor of the retail reports.

World Banks Predictions

The World Bank declared that it appears that China’s economic slowdown has bottomed out.  With the fiscal stimulus plan put on the fast track and acceleration of start-up projects, the expansion is expected to hit 8.4% growth rate through 2014.  In spite of this rosy prediction, the World Bank warns that if there is a sharp decline in investments in China, the result could be another worldwide economic earthquake.

Forbes’ Skepticism

Forbes’ estimation of the growth surge at the end of 2012 is grounded in the loosening of credit to stimulate sales in the housing market.  With money to buy a house, construction increased to meet the latest demand.  Beijing had stiffened its lending policies nearly closing them down when the last boom in real estate made housing unaffordable.  With releasing the locks on bank loans, Forbes’ experts notice that unaffordable costs are increasing too rapidly.  They are concerned about a housing bubble reminiscent of the one in 2008 that had investors resting on an unsupported shelf.

Multiple Factors of China’s Economic Future

There are external and internal dynamics that investors and economic advisors are ignoring in their forecasts. China has a limited labor force.  The single child per family law that has been in effect since the 1950s is now seeing the problems that arise from austerity in birth rates.  The cost of labor increased as the working class has demanded pay equivalents that will create a middle class situation in China.  Foreign manufacturers who were the darlings of investments for the last 40-years are closing factories and relocating to “cheaper” labor markets such as Southeast Asia and South America.  The independence and equality messages integral to a western capitalist market has taken root and is now about to bid ado to their personally created China Trade.

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