Preston believes China has an "unbalanced economy whose recent sources of growth are not sustainable.”In 2007-2008 “…the Chinese government unleashed a stimulus programme of mammoth scale: £400bn…growth accelerated... But the sources of growth…have a limited life.” “…China's growth rate…really looking at 4%."“But what makes much of the spending and investment toxic is the way it was financed: there has been an explosion of lending. China's debts…have increased since 2008 from 125% of GDP to 200%.”“…investing at that pace…it is a…certainty that much of it will never generate an economic return…debtors unable to meet their obligations…large losses for creditors; the question is not whether this will happen but when, and on what scale.”
Based on my experience working with operating companies in
Shanghai and Guangdong, I have to agree. My expectation for China’s future is
negative, as their potential for serious growth and continued competitiveness
will prove to be very difficult.
Having inspected a number of Chinese owned manufacturing
companies in mainland China, it becomes apparent manufacturing knowledge,
processes, and systems are woefully behind the times. Contemporary
manufacturing in China corresponds to the USA’s 1970 manufacturing
capabilities.
Therefore, cost increases from higher wages and inefficient
operations are to be expected. Also, unfavorable changes in currency valuation
will be a factor. This will result in lower growth, employment and capital
availability. This will make it far more difficult to service its debts and fund
necessary initiatives.
Judging from my visits, the young and educated Chinese appear
much more independent, aggressive and spontaneous. It may make its citizens more
difficult to control. Social unrest could be a major issue affecting China's
economic development as well.
Here are some other posts on China:
