China's middle class is largely irrelevant at this point.
That is by far the dumbest statement I have read on these forums.
The Chinese middle class has a direct link to the health of the Australian economy, if not the most important aspect in the present world for Australias future.
It will be many decades, before China's middle class even approaches the number, yet alone the purchasing power of the Western middle class.
Repost this thread in 200 years time and it MIGHT be relevant.
Really. I guess Apple got it wrong then when it decided to focus its future growth on China. Oh yes Apple profits just broke all kinds of records, due to massive demand from Chinas middle class for Iphones and Ipads. I guess your brighter then the Apple CEOs who just made $11.9 billion profit in a quater.
China is in transition, it will be for the next few decades. China will move from an export producer to a net importer of products, not just resources. Much like the US today, as Chinas income rises its people will demand more. Chinas per capital incomes has gone from be 30-1 vs the US per capita income to be 10-1 today in just 10 years.
The rest of the world will in the comming years produce far more and export it to China. The problem will be this.
Resources. With enough people and technology we can produce almost limitless amounts of what we need. The problem is having enough oil, water, gas, iron ore, coal, copper, gold and so on to produce it. What will be the price of oil when Chinas middle class grows from 300 million to 600 million. China is expected to grow from the present 18.5 million cars per year sold to 30 million per year by 2020, just 8 years away for car growth to almost double. The US sells about 16 million cars/trucks per year as an example. To build another 11.5 million cars per year is alot of resources, let alone the roads, freeways the need or the houses and apartment blocks to keep them in.
So we need alot more resources. So if resources are limited but demand is growing rapidly, what will happen to prices for resources over the comming years. This only takes into account of China, add in India and the rest of south east asia and we have a much bigger problem .
The other flip of the coin is when a nation cannot buy resources its needs at a sustainble price, it goes to war to get them. Could we see wars for resources, land much like the 1st half of the 20 century.
mmm...if apple sold nappies then it would be a poor and difficult move...I am not sure of the point here.
If it is one of comparing Japan economy 1975 to current China then yes with the obvious riders within individual industries.
The real difference here is the politics and the people.
China's middle class is largely irrelevant at this point.
That is by far the dumbest statement I have read on these forums.
The Chinese middle class has a direct link to the health of the Australian economy, if not the most important aspect in the present world for Australias future.
I will hold you to this statement for along time.
Comprehension not your strong suit?
The chinese middle class is largely irrelevant because it hardly exists and has next to zero purchasing power compared to the western world middle class at this point in time (and for decades to come)
-$10K a year is middle class? It's all a matter of semantics. Here in Australia it would be seen as very poor. And while the author of the original article isn't off the mark by saying 10K can buy more in China than the West (cost of living is always lower in poor countries), lets not stretch this concept too far. Bottom line is that PPP figure, which adjusts for lower living costs show the average income in China is what we would consider very poor. There is also the issue that from an exporter's point of view nominal incomes are more important than PPP incomes, because at the end of the day a buck earned by an Australian exporter is a buck, irrespective of what it can buy in China.
-Because of China's population, they matter to us. A lot. There is little doubt that strong resource demand is pumping lots of money into our economy.
Bottom line: China is a poor country per person, but because they are a largely populated country, they have a substantial impact on us.
My name is based on a Seinfeld character, not on a belief of a housing bubble.
Mike, there isnt a consumer company in the world that doesnt have a strong China strategy. Its only since probably early 2000s that it has been profitable to be there, before that it was a market-share and brand-building play. Now there is real money to be made, sure.
So you're right at a very very high level. The trouble is that it isnt reasonable to extrapolate past growth rates to future. Limits are reached, and countries fall into the middle-income trap where they cant generate enough extra income versus their increasing social costs. China is a classic case of this. The only way out of that trap is a huge increase in education and innovation that takes generations. And yes, competition for resources will be an issue. But that doesnt mean iron, copper, coal prices keep rising. Supply responds, demand grows more slowly etc.
There theres the fact that all this "progress" is built on the biggest credit bubble in human history. That is a BIG problem because those have a habit of popping nastily.
Mike, there isnt a consumer company in the world that doesnt have a strong China strategy. Its only since probably early 2000s that it has been profitable to be there, before that it was a market-share and brand-building play. Now there is real money to be made, sure.
So you're right at a very very high level. The trouble is that it isnt reasonable to extrapolate past growth rates to future. Limits are reached, and countries fall into the middle-income trap where they cant generate enough extra income versus their increasing social costs. China is a classic case of this. The only way out of that trap is a huge increase in education and innovation that takes generations. And yes, competition for resources will be an issue. But that doesnt mean iron, copper, coal prices keep rising. Supply responds, demand grows more slowly etc.
There theres the fact that all this "progress" is built on the biggest credit bubble in human history. That is a BIG problem because those have a habit of popping nastily.
The "supply response" isn't the only issue.
Some on this forum have suggested that if hypothetically China's growth dropped markedly, or even went to zero, since their total output would not decrease, this would be no decline in resource demand. Such a comment is incorrect. The bottom line is that China consumes a substantially larger amount of iron ore, copper etc per unit in GDP than pretty much anywhere else. If China's growth were to fall, it would make sense that their demand of resources per unit of GDP would fall to closer to the world average, meaning that their total demand for resources would markedly fall.
In other words, constant GDP (or GDP rising by small amounts) would likely lead to a marked fall in resource demand.
My name is based on a Seinfeld character, not on a belief of a housing bubble.
Mike, there isnt a consumer company in the world that doesnt have a strong China strategy. Its only since probably early 2000s that it has been profitable to be there, before that it was a market-share and brand-building play. Now there is real money to be made, sure.
So you're right at a very very high level. The trouble is that it isnt reasonable to extrapolate past growth rates to future. Limits are reached, and countries fall into the middle-income trap where they cant generate enough extra income versus their increasing social costs. China is a classic case of this. The only way out of that trap is a huge increase in education and innovation that takes generations. And yes, competition for resources will be an issue. But that doesnt mean iron, copper, coal prices keep rising. Supply responds, demand grows more slowly etc.
There theres the fact that all this "progress" is built on the biggest credit bubble in human history. That is a BIG problem because those have a habit of popping nastily.
Exactly. I dont argue the point that China will face many hurdles, it will. All the points raised here and by bubble boy I talked about in my blog years ago. Chinese growth will slow, but not by as much as what some may think, not yet any way. China is far from hitting the middle class trap just yet. It still has around 1 billion people outside of its middle class. China will face massive social and economic problems now and in the future, but what country with over 1/5 of the worlds population would not. China is a communist country but they should be commended for what they have done to date in terms of economic growth. Hopefully political change will follow some time in the future.
The Chinese growth storey is still only in its early days. It will take far longer then most predict for it to surpass the US if indeed it ever dose. The potential of China is almost unlimited at this point, which brings me to the point I raised. Chinas potential is only limited by its ability to secure or buy resources.
No one has still answered the questions, of what happens to the price of resources or demand for resources of nearly every type as Chinas middle class grows from 300 million to 500 million over the next 8 years and while doing so becomes richer on a per capita basis. By 2020 economists predict China will have an income per capitia of 7-1 vs the US, closing the gap today from its present 10-1. What effect does another 200 million chinese in the middle class have on Australian resources. Everyone here is good at saying how hard it is for china, or how the middle class dosnt affect us. I say your wrong. It is and will be the largest event in historical and economic terms in human history, a change in population wealth on this size has never happened, not even close.
If China's growth were to fall, it would make sense that their demand of resources per unit of GDP would fall to closer to the world average, meaning that their total demand for resources would markedly fall.
Do you have an academic source for this proposition, or is it one of your own?
Is there *any* correlation in the relative growth data to date?
Do you have an academic source for this proposition, or is it one of your own?
Is there *any* correlation in the relative growth data to date?
If GDP growth were to drop to zero in China, the steel intensity would decline markedly. When Japan and South Korea industrialised, steel intensity increased as a result of their auto industry. China has a very high steel intensity (relative to its stage of industrialisation) due to high rise building construction.
There is a lot of 'fake GDP' in high rise construction in China which has led to a large oversupply of commercial and residential space. If GDP growth were to decline, this fake GDP would disappear, and with it the demand for commodity steel, and hence iron ore.
Search for Jim Chanos and China. They've done the numbers, and there is probably at least 2-3 years worth of oversupply to work through before the property market resumes positive growth.
The only way this can be avoided is if China quickly develops their automotive industry to replace the demand for steel. Problem is, automotive steel is specialist steel, not commodity steel, and Chinese steel makers would need to make that adjustment quickly to supply the auto industry.
The above has the same, but lesser effect on copper and other commodities. Essentially, a lot of GDP in China has been mal-investment in property (like somewhere else ... cough ... cough). This is because high GDP growth attracts capital investment (from the west), which China desperately needed, so the regional governments were instructed to provide growth in any way necessary. Once it goes away, the demand will return to levels that are normal for a country of 800 million peasants and 300 million urbanites. i.e. it will decline.
Do you have an academic source for this proposition, or is it one of your own?
Is there *any* correlation in the relative growth data to date?
The graphs below prove Chinese commodity demand per unit of GDP is disproportional to most other countries.
Can I prove without any doubt that if Chinese growth dropped markedly (to zero or even half its current rate) that this would change? It is not provable since it is hypothetical. However, given that much of China's disproportional commodity demand is due to "growth" activities (eg new buildings) it makes sense that a material decline in such activities would cause a material decline in commodity demand. A slow or zero growth economy does not build new buildings at anywhere near the rate as a fast growing one.
Here's one from Rio Tinto showing China's consumption of commodities as a % of world demand:
One from Treasury (though a few years old)
And from Macrobusiness (I don't agree with everything, or even many things MB say but this appears sourced)
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