Peasant near Xingyi, Guizhou

China at the Precipice?

Recent economic indicators have added grist to the mill for those China watchers predicting the Middle Kingdom is on the edge of an economic cliff. Spokesmen in Beijing have announced that future annual growth estimates have been scaled back to 7.5%. Meanwhile analysts consider 10% is necessary to handle job seeker needs and avoid social unrest. A trade deficit of $31 billion in February may be a harbinger of future deficits too although the figures are not seasonably adjusted nor do they take into account the Chinese New Year when work places grind to a halt for a week (and an exhausting blow-out party ensues). Steel industry advance orders are down notably, inflation has tempered but is at 3.25%, above the current average of G8 countries, and the Chinese housing market bubble is still causing fear and consternation amongst home owners and would be buyers. As the cool world economy hurts Chinese exports, the transition to an internally driven market is happening but how consistent this trend will be is not clear. China continues to rely on oil imports. Down the road the exorbitant world price will severely undercut its competitive position. One analyst on Coast-to-Coast nighttime radio says the price of oil is about 10 to 12 times more expensive than natural gas prices for equivalent energy (BTU) output. Since the United States is sitting on huge reserves of the latter and runs much of its industry on natural gas and has seen its oil consumption plummet by 15% or so in recent years, gradually the relative health of the worlds top two economies may be reversing again. There are signs manufacturing is being repatriated to the US of A at the expense of China. He says world wars are increasingly economic and to boot that US moves in Libya, Egypt and even Afghanistan have more to do with the containment of China than anything else. Who knew? Apparently China was taking over the Libyan economy and had a major oil refinery planned for Egypt. Also any closing of the Straights of Hormuz would affect China far more than the West because the latter can reroute oil through pipelines in Saudi Arabia to the Red Sea and on to market which China cannot. Lots to chew on here! One thing for sure though, China is not indebted like the West.