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Hey China … Are You Sustainable?

Mar 26, 2014 | Market & The Economy | 0 comments

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Today’s global economy is primarily determined by two critical factors: first, the state of the US consumer and second, the state of China. As we know, that US consumer has been flagging of late and is currently working its way out of debt. As for China, it has experienced extraordinary economic growth year after year.

Is it sustainable? Is the autocratic government covering up some major weaknesses?

The size of the Chinese story is simply staggering. Here are some extracts we have taken from a report we received from Investec Asset Management a few months back, that we’d like to share with you:

‘Eighteen months to two years ago, the Chinese hard landing was seen as one of the bigger threats to the global recovery.  Throughout, Beijing denied the hard landing forecasts, instead insisting that China was deliberately engineering a slowdown in order to transition its economy from being ‘manufacturing-driven’ to ‘consumption-driven’.  Well, it looks as though it has succeeded, with growth expected to be 7.5% – 8% this year and the same expected for the next two years.

Chinese planning has also identified that a global population increase from 7 billion to 9 billion by 2050, coupled with the fact that climate change is going to increasingly play havoc with crops, means food shortages are going to become significant.  To make provision for this, China has leased 3 million hectares of Ukrainian farmland for the next 50 years. It also bought Australia’s biggest cotton farm in 2011 and purchased more than 50 Bordeaux vineyards to ensure its own people have enough wine!

Air quality, however, remains a significant problem, with pollution often more than double the levels perceived as unhealthy.  Sixteen of the world’s twenty most polluted cities are in China.  Obviously this, coupled with rising disposable income, makes the Chinese want to travel. China, with tourism expenditure of $102 billion last year (up 40% from 2011) is now the world’s biggest tourism market.  It has pushed Germany and the UK – both spending approximately $84 billion – into second and third place respectively.

Incidentally, Chinese central planning does not stop at food.  In a rare moment of compassion (or maybe to avoid government having to act) the government has identified that youth education and urbanisation have led to the neglect of elderly parents in rural areas.  It has therefore passed a law, prescribing young people to care for their elderly parents.  They have to call and visit regularly and if they don’t, the parents can file a lawsuit against them.  Living far away is not an excuse: companies have to allow parent-visiting leave!



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