Each time I hear financial pundits declaring China's domestic demand as the new engine of the global economy today, I figure they must be smoking dope or desperately reaching for an investment thesis to sell. Contrary to popular hope, China today needs US consumption if they want to keep their over-grown economy afloat. Yes there are over a billion people in China. But with a median household income (in US purchasing power parity terms) of $5,380 a year, China needs western buyers to sell to. The only way to fix this imbalance would be for Chinese workers to get a huge pay raise and start spending a lot more (they currently save some 40% of their income). It seems that their communist government is unlikely to support huge pay increases; and they certainly seem opposed to an increase in purchasing power through a much stronger Yuan.
As discussed in this clip, with $847 billion in Treasury securities, China is the largest foreign holder of U.S. debt. China’s export industry would virtually collapse without the U.S. market. “China this year has run up a $145 billion trade surplus with the U.S., more than the U.S. deficit with the next seven- largest trading partners combined,” according to Bloomberg.
Cory’s Chart Corner
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