The focus on Europe’s debt chaos has left less attention for financial and economic changes in China but it could be that the China’s situation ultimately has more influence on the U.S. economy and global investment markets.
Consider this interesting note from the quarterly review of First Eagle Funds.
“Back in 2000, the United States was the uncontested prime mover in the world economy; it was the dominant source of savings and investment activity in the world, generating approximately $1.8 trillion in gross national savings, or about 25% of global gross savings. At that time China was a distant player generating around $440 billion of gross national savings.¹
Looking at the same numbers in 2011, the U.S. has essentially spent a lost decade in terms of its competitiveness. Gross national savings in 2011 were $1.9 trillion, virtually identical to where they were in 2000 in dollar terms, but this represents only 12% of global savings. On the other hand, China’s gross national savings in 2011 is estimated at $3.7 trillion, nearly twice that of the United States and up eightfold since 2000.
This reflects what we perceive to be a massive sea change in the competitive structure of the world economy — a change which can create enormous social tensions that may drag on for a generation.
Amidst all of the global competitive uncertainty, however, we still see some reasons for optimism. We live in an age where good ideas are being generated in abundance, and can be transmitted around the globe in a fraction of a second. The most important asset in the global economy is intangible human capital. This provides some shield against the severe scenarios of doomsayers.”
China’s economic expansion was 7.6% year-over-year through the second quarter of 2012. This dominates much of the rest of the world but is deceleration for China, its lowest growth rate in three years.
In the Monday, July 16 Wall Street Journal, Tom Orlik wrote about the Chinese consumer and finished his article stating: “Now growth is slowing but incomes are rising, and it is time to go shopping with the Chinese consumer.”
1 International Monetary Fund, World Economic Outlook Database, April 2012
~ Gary Brooks, CFP® — Brooks, Hughes & Jones, Partners in Wealth Management — Tacoma, Washington