PUTTING THE CHINESE ECONOMY IN PERSPECTIVE

In 1972, President Richard M. Nixon visited (what was then referred to as) Communist China.  Western media made a big deal out of the fact there were only a few automobiles on the streets of Beijing, and they were used by the very wealthy and government bureaucrats.  The Chinese masses rode bicycles, Mao Jackets were virtually de rigeur and pollution seemed virtually nonexistent.

In 1979, Deng Xiaoping, the Chairman of the Communist Party, instrumented a number of Economic Reforms, which began transforming China gradually into a Capitalist Society.  It is important to remember, however, that China is still a Managed Economy.  That shift moved roughly 25% of China’s 1.35 Billion Population into the “Consumer” (Middle) Class.  Cars now fight for space among Beijing’s burgeoning traffic congestion, urban dwellers have mostly adopted western-style clothes and Beijing’s pollution has become worrisome.

Recently, many investors have become concerned with the impact of the slowing economic growth in China–and what that may mean for the overall Worldwide Economy.  Several years ago, China passed, first, Germany and, then Japan, to become the second largest Economy, after the U. S.  But, let’s put that into Perespective.

Between 1960 and 1978, the Chinese Economy, as measured by the Gross Domestic Product, grew by 5.5%, on average.  Following the Economic Reforms of 1979, that growth had basically doubled, to 10.4% by 2010, with substantial fluctuations along the way . Between 1980 and 2013, the GDP of China multiplied by 30.27 times, to $9.185 Trillion.  For comparison, the U. S. GDP multiplied by 5.67 times, to $16.237 Trillion.

The potential impact of the slowing of the Chinese Economy, at least to me, should not be as worrisome as some pundits say. When you look back 30-to-40 years, the interim growth has been from a very small base. For instance, the 1980 GDP ($303.446 Billion) was only 1.06% that of the U. S. ($2.8625 Trillion). Currently, China’s GDP has reached $9.185 Trillion, which is 55.57% that of the U. S. $16.237 Trillion GDP.

When comparing the National Economies of countries, however, I prefer to consider the respective Standards of Living–or, put another way, the Per Capita GDP.  With a population of approximately 1.35 Billion, China is roughly 4.3 times the size of the
U. S.  So, if you compute China’s GDP on a per capita basis, it would drop down the list somewhat as compared to the economies of Germany, Japan, South Korea, etc.

It is important to point-out that most of China’s growth has been in the service, lower-end manufacturing and assembly sectors; so, it hasn’t quite made in-roads into the true upscale Technology Sector…at least, not yet.  But, that shift is what has moved roughly the equivalent of the entire U. S. Population into the Chinese Consumption Class.

Consider the impact of that many people starting to shop for other than the barest of necessities, moving into more-modern apartments, buying consumer electronics products, adding more protein to their diets and driving cars, etc.  But, the economic growth of the past 35 years cannot possibly continue and, more and more, that will lead to Inflation and the need to Import more and more commodities, consumer products and the means of production from overseas markets.  And, let’s not forget the environmental impact that such consumer growth will cause, both in China and Worldwide

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