Lillian Bogonko

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Is China really slowing down or has it simply chosen to focus on its domestic market instead of relying on exports?

I read Kenneth Rapoza`s post on Forbes and thought how about a discussion on what is really going on with China. See attached link and let`s keep talking.

http://www.forbes.com/sites/kenrapoza/2012/09/10/china-downgrades-coming/

  • Sep 20 2012: Hey Lillian, I think that the domestic market is becoming more and more important. But I'm of the opinion that this is not an active decision of the Chinese government but is rather resulting out of recent social developments:
    I'm currently doing an internship a few hours away from Shanghai and everybody's telling me that this is not the place to be for export-oriented business anymore. They're all moving to Vietnam, or Cambodia or elsewhere. Salarys became just way to high.
    At the same time, the Chinese government is trying to push the GDP with (either direct or indirect) infrastructure pojects.. Seriously, I've never seen so many construction sites. This works fine for the moment, due to their huge trade surplus.
    But this is what I think is happening next: The problem might be that when exports are declining the trade surplus is shrinking, too. Consequently, there's no money for those big infrastructure programms anymore. But there are still roughly 600 million more or less poor people who are demanding continuing economic growth...
    What's your opinion on this topic? What do you think is going on at the moment and where is it going in the future?
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    Sep 14 2012: The problem is with China and its relationship with GDP as we know it. Trade means both inmports and exports. Until China works to permantently open its market to other countries the opportunities will deminish and the growth cannot be sustained. Countries cannot operate at a trade imbalance.

    The major problem facing China is that as it grows people will become wealthy and the workers will begin to make demands to share in the wealth. That is a direct threat the the leadership and the existing political structure.
  • Sep 11 2012: It is not really slowing down, as it never sped up...This short time phenomenon of unexpected growth was just an effect of the global markets going mad, globalization circus that held big shows all over the globe. Now that the rats left the sinking ship already (you can see that the known players moved to other markets a half year ago), it is just more visible.

    China was clever, as they knew from the beginning that this would not last long. The chinese leadership knew pretty well that the national politics must come first, but instead of doing the same mistake like other victims of globalization, they fought well. They did not sell out their treasures, instead of that they forced the modern robber knights to "joint ventures" and things like that, took their knowledge for cheap and gave them short wins in reply, until they move to the next state. Those wannabe knights who stayed too long are faced with the usual stuff like law pressure and broken contracts, until they leave in peace.

    On same time, they used the investors money to reach out to mineral deposits in africa, not for now, but for later times. The first one that got strong bounds in that region is gonna making the profits, just by trade. Africa is not able to get this working, so China will do the trade and take the earnings, while the africans do the work for almost nothing.

    By that, china will have a constant income, controls the development of foreign markets, can pay the national politic changes that must follow and slowly keep in touch by that knowledge they gained from the joint ventures and so on. Only risk factor is the military aspect, but china has the manpower, Africa has neither the manpower, nor the knowledge.

    China was clever that they did not come by force, but lured with money and long-term contracts.

    China grows, better said develops, but this time it will not stop, because they became independent.
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    Sep 11 2012: Dinners slowly winding down.
  • Sep 11 2012: Interesting perspective.

    China's growth in terms of GDP is reducing from an avg 10% PA down now to about 7.6.
    That growth is still substantial.

    Beyond this; China's imports have slowed simply because they have purchased enough to sustain their long term plans for this year. It is a common practice in china.

    I sell raw materials to Chinese mills and foundries; and their orders have nearly evaporated. Were once they were buyers for about 1000-2000MT per month, now they are buying about 100-200 mt simply to keep material flowing or keeping relationships.

    The Chinese government is also the largest holder of prime metals in the world.

    This would have something to do with a reduction in prime imports as well.
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    Sep 11 2012: C'mon you can't grow 10%/year forever.

    All the big investments that have been going on in China for the recent good couple of years were government projects (undergrounds, super-fast trains, business centers) - which means that it was simply pumping the money into the economy to sustain the fast growing economy or even boost its numbers.

    But were these projects economically justifiable?

    The problem with focusing on the domestic market in China is that the growing wealth makes people unruly, which the Chinese government wouldn't like to see. If all the workers in the country ask for a pay-rise they can kiss their competitiveness goodbye.