Tuesday, October 25, 2011

Chinese growth, the future of India et al.

China has shown some impressive growth numbers and has passed US this year as the biggest economy in the world. One key elements of China's impressive growth has been undervalued currency which has subsidized exports, investments and together with rising salaries consumption as well. Just look at the chart below (click to enlarge).

The growth components of the developed world is usually dominated by personal consumption which adds up to 80-90% of GDP growth. What happens if the salaries of Chinese workers have risen to a level that makes it financially reasonable to move your factories to India, Indonesia or Vietnam for example? What happens if there is no undervalued currency (due to pressure from inflation or other countries), no massive investments to export sector hence reducing pressure to raise wages as well (reducing consumption)?

One thing is for sure - this trend is good for India and other poor Asian and African countries. This might also be good for Western countries since more people in the world get richer creating jobs in Western countries as well. What kind of changes this means to China is uncertain.

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