There are many facts about China's economic growth that have been debated in the media recently, but it is generally believed that they all have a common thread. The fact of the matter is that China has been able to pull off a remarkable feat in becoming the world's largest debtor while at the same time building up a huge surplus of non-domestic consumer wealth. The question that I always have is what have these two factors done for China's economy? Let's take a look at some facts about China's economic growth and its effect on the U.S.
One of the most important facts about China is the fact that it ran a current account deficit in the past decade. In fact, it was so large that at one point or another it had to seek outside help to raise funds to service the massive balance sheet. The result of this excessive use of the domestic currency in foreign markets was that China had to seek significant financing through either U.S. or European banks in an effort to service its foreign debts. This means that China was effectively using its currency as international security against its debts.
What kind of impact does all of this have on the American economy? One thing that I frequently note with Chinese consumers is that they are very frugal with their money. They tend to buy only what they absolutely need with every penny they have. This results in savings, because instead of buying furniture and appliances that will just sit in a store floor, they sell them to charity or to friends and family, who then re-sell them locally at a profit. The result is that we have a large population of consumers who have built up huge savings due to the fact that they were less concerned about living beyond their means than ever before.
So just what are the facts about China's economic growth? There are certainly plenty of signs that show it is enjoying one of the largest economic expansions in history. The truth is that many people cannot be wrong, whether they are saying that China is a cheap country or that it has one of the strongest GDP growth rates. Of course there are many factors that come into play when assessing these facts. The strength of the actual economy, the level of trust in the Chinese government, the level of competitiveness of its goods and services along with the number of foreign direct investment are just a few of them.
But I'd like to mention some other facts about China's economic growth that we should be aware of. For example, while it is true that the value of the Chinese currency continues to weaken versus most major currencies, the currency continues to increase in value versus the dollar, particularly over the last couple of years. And it doesn't look like the dollar is going to lose ground versus other major currencies any . . . . . . time soon either. These facts about China's economic growth give us a clue that perhaps we shouldn't be so worried about their economy.
We should also know that the recent economic growth in China is a result of their government's ability to stimulate the economy. One of the most popular examples of this is the massive stimulus package, the government recently passed in order to help finance large infrastructure projects throughout the country. Not only did this stimulate the economy, but it also helped make goods more affordable for ordinary citizens while simultaneously creating more jobs. Just to name a few of these projects, the massive New Silk Roads Commission was started which will be implementing the “Maritime Silk Road” throughout the Asia-Pacific. Not to mention the creation of the Asian Infrastructure Investment Bank. All of these efforts are aimed at creating a stronger economy and making life easier for the people of China and the people of the rest of the world.