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July 30, 2007

China is hitting on all cylinders

I don't think it's any secret that China is growing fast - we all read the news. One of the hidden secrets is just how fast they are growing and, can they keep up the torrid pace for exporting products. With the westernization of their culture just starting, the lower and middle classes are getting a taste of the good life. Spending and making more and more money in a vicious cycle and 10% GDP growth per quarter could go on for quite some time. Where I'm perplexed is just how they will meet their own needs for products and services as the manufacturing base peaks production. Plants can only be built and expanded so fast and the labor component will eventually demand more money and become scarse (ala U.S. manufacturing in the 70's). Will they curtail exports and drive up prices here in the U.S. and around the world? They could if they needed or wanted to. 

Gdp_chartIn teh next 12 months China will easily outpace Germany in total GDP and Japan will be within shooting distance (no pun intended). It's also easy to fathom that within the next 5 years China's GDP will easily surpass that of the U.S. with our controlled growth through interest rate manipulation. Something has to give with soaring domestic demand and the manufacturing growth capabilities of China. My bet is that China restricts exports within the next 5 years to meet their own needs. We recently bought a company based in Boston (Supply Strategies) that makes a market here in the U.S. for trade/price imbalances for commodity type products. They have positioned themselves with manufacturing plants throughout China for the types of products that mid market manufacturing and distribution companies buy every day here in the U.S.. Right now products from China are still inexpensive and plentiful. I can see the day when that will no longer be the case. 

July 30, 2007 | Permalink


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