China's Visit a Big Deal - Now What?
When China's Premier HU visited Washington recently, it got a fair amount of media coverage. And that made sense. China's a big deal these days. So now that the Premier's back in China, what's next?
First, China's going to continue to grow as an economy. Jeffrey Imelt, GE's CEO, announced that China will someday have an economy bigger than the U.S., which means it will have the world's biggest economy. Of course, Imelt's been all over the Chinese trying to do business in China. If you look at his comments for the last few years, you could say he's been almost obsequious so that the Chinese will make deals with him advantageous to GE. I guess that's only natural for a CEO looking to grow his company. I guess.
But what about us regular folks? Will China becoming the biggest economy in the world make a big difference to us? So far China's economic growth has meant that we get access to tons of cheap (and frequently cheaply made) goods. We've paid less for all sorts of items like clothes and toys. Whoopee! Americans have stuffed their closets with gobs of clothes and gew-gaws. The storage business has boomed as people can no longer fit all the stuff they've bought and store it in their homes and apartments.
Economists say that access to cheaper means an improvement in our "quality of life."
Is that an improvement in our "quality of life"? I don't know. You tell me. Actually, I do kind of know, but I'm reluctant to say. After all, it's a free country and if you want to waste - er, I meant spend - your hard-earned money on all that stuff, then please go ahead. Don't think I'm judging you.
What I do know is that in my little speck of real estate, I'm pretty full up. It's time to give some away. I wonder how much of that stuff was made in China. Honestly, I don't really know.
Now, here's something that's worth paying attention to - especially if you're one of those who's been dying to "invest" in China. First, you may have noticed that the Chinese stock market's been heading down. It's been reacting to the Chinese government central bank tightening up on credit. Stock markets don't like that.
But maybe more important is this: It looks like China believes it's exempt from the business cycle. Lots of smart people I read and respect really believe that China's government has been "managing" their economic policy better than the U.S. government. And maybe they have. But you get to a point where you have to ask yourself whether we're becoming blinded by China's impressive growth especially over the last decade or so.
What I mean here is that government has made credit easily accessible to selected businesses in China. And somehow we're all kind of ignoring the simple fact that easy credit - while it will stimulate economic activity for a while, even for a long while - inevitably ends with some sort of downturn. The simple reason is that when government makes money easily available - and cheap, i.e., you can get it at low interest rates - then businesspeople are more than happy to borrow it and make stuff. And for years that stuff has been sold to the U.S. And the people who made that the stuff have made fortunes.
But are we Americans really going to keep buying up all that stuff at the same rate we were when things were flush? Aren't things tight now here? And if we stop buying all that stuff, shouldn't that mean that the Chinese economy hits a bump - if not a wall?
Oh, that's right. The Chinese will just start buying up their own stuff. That's the theory. But that's not happening. So far, there's no equivalent mass of consumers buying Chinese stuff in China. Far from it.
So maybe the next thing coming is a Chinese recession - or worse. Imagine that? Imagine China actually not growing every year? What will the world be like if that happens?
First, China's going to continue to grow as an economy. Jeffrey Imelt, GE's CEO, announced that China will someday have an economy bigger than the U.S., which means it will have the world's biggest economy. Of course, Imelt's been all over the Chinese trying to do business in China. If you look at his comments for the last few years, you could say he's been almost obsequious so that the Chinese will make deals with him advantageous to GE. I guess that's only natural for a CEO looking to grow his company. I guess.
But what about us regular folks? Will China becoming the biggest economy in the world make a big difference to us? So far China's economic growth has meant that we get access to tons of cheap (and frequently cheaply made) goods. We've paid less for all sorts of items like clothes and toys. Whoopee! Americans have stuffed their closets with gobs of clothes and gew-gaws. The storage business has boomed as people can no longer fit all the stuff they've bought and store it in their homes and apartments.
Economists say that access to cheaper means an improvement in our "quality of life."
Is that an improvement in our "quality of life"? I don't know. You tell me. Actually, I do kind of know, but I'm reluctant to say. After all, it's a free country and if you want to waste - er, I meant spend - your hard-earned money on all that stuff, then please go ahead. Don't think I'm judging you.
What I do know is that in my little speck of real estate, I'm pretty full up. It's time to give some away. I wonder how much of that stuff was made in China. Honestly, I don't really know.
Now, here's something that's worth paying attention to - especially if you're one of those who's been dying to "invest" in China. First, you may have noticed that the Chinese stock market's been heading down. It's been reacting to the Chinese government central bank tightening up on credit. Stock markets don't like that.
But maybe more important is this: It looks like China believes it's exempt from the business cycle. Lots of smart people I read and respect really believe that China's government has been "managing" their economic policy better than the U.S. government. And maybe they have. But you get to a point where you have to ask yourself whether we're becoming blinded by China's impressive growth especially over the last decade or so.
What I mean here is that government has made credit easily accessible to selected businesses in China. And somehow we're all kind of ignoring the simple fact that easy credit - while it will stimulate economic activity for a while, even for a long while - inevitably ends with some sort of downturn. The simple reason is that when government makes money easily available - and cheap, i.e., you can get it at low interest rates - then businesspeople are more than happy to borrow it and make stuff. And for years that stuff has been sold to the U.S. And the people who made that the stuff have made fortunes.
But are we Americans really going to keep buying up all that stuff at the same rate we were when things were flush? Aren't things tight now here? And if we stop buying all that stuff, shouldn't that mean that the Chinese economy hits a bump - if not a wall?
Oh, that's right. The Chinese will just start buying up their own stuff. That's the theory. But that's not happening. So far, there's no equivalent mass of consumers buying Chinese stuff in China. Far from it.
So maybe the next thing coming is a Chinese recession - or worse. Imagine that? Imagine China actually not growing every year? What will the world be like if that happens?
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