China is growing at a rapid
pace but that growth comes with a few growing pains. The Shanghai Composite has
been hit an 8.5% loss and this has caused economists to scratch their heads and
wonder why. The government stimulus
package doesn’t appear to be working and this should lead American policy
makers to consider their own approaches.
China has some things that have
led to its economic increase but it has more things starting to work against
it. Cheap labor and growing infrastructure were helped the country spring
forward in its growth. They were growing so fast that they even hoped their own
currency would become an international standard.
Unfortunately, the tide has turned
in many cases. Manufacturing in many countries has reached parity with Chinese
manufacturing based in capital investments and technological improvements. It
is possible to produce products of same or higher quality in other countries.
There are also trade wars and
tariffs that artificially protect Chinese businesses from competition. The tight
government control that lack adequate intellectual property right protections
and barriers to entry are causing difficulties in gather new innovations,
technologies, and intellectual.
The artificial propping of the
economy means that the stock market increased in the short-term to take
advantage of the massive government influx. This influx has run its course and
appears to be poised for major market corrections that put stocks back to their
natural value.
China will have a difficult
next few years cleaning out their economy and making a solid decision to enter
the free market or maintain the heavy controls of the past. Each course will
have its own consequences. For now the nation has decided to jump in and manage
the market correction.
Despite their best efforts
China’s success is based in its ability to engage the world market and engage
in meaningful reform that leads to greater prosperity for its people. This
cannot be bought with government funds and becomes increasingly difficult as
the fundamentals of the economy shift. Greater openness and individual pursuit
of wealth can turn the slap of the invisible hand to a helping one.
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