Lite reading.

*everyone keeps claiming that China and/or India will lead the world out of the Great Recession. And China keeps complaining that the US better make sure their investments will be safe going forward. I thought this was interesting.

Export-Dependent China
In late 2007, most forecasters disagreed with us and said China’s economy would continue to grow at double-digit rates, and even support the U.S. economy if it softened. However, in “The Chinese Middle Class: 110 Million Is Not Enough” (Nov. 2007 Insight), we explained that China was not yet far enough along the road to industrialization to have a big enough middle class of free spenders to sustain economic growth if exports fell with U.S. consumer spending, as we were predicting. As we noted in that report, in China, it takes $5,000 or more in per capita income to have meaningful discretionary spending. The 110 million who fit that category are a lot of people, but only 8% of China’s population. In India, the middle and upper income classes are even smaller, 5%. In contrast, in the U.S. it takes $26,000 or more to have middle-class spending power, and 80% of Americans qualify. So we wrote in that report that all the cell phones and PCs being bought by Chinese was not the result of domestic economic strength, but merely the recycling of export revenues and direct foreign investment funds. And we went on to forecast that U.S. consumers would retrench, resulting in a nosedive in Chinese exports and a deep recessionary slump in China’s growth. Well, as they say, the rest is history. It now seems likely that China’s earlier double-digit growth rates will slip to the 5%-6% range that would probably constitute a major recession, and probably lower. About 8% growth is needed to accommodate the vast numbers who continually flood from the countryside to the cities in search of work and better lives. Of those who went back to their villages to celebrate the recent lunar new year, 20 million didn’t return because their factory jobs had vanished along with Chinese exports. Worker unrest us mounting and just as civil disturbances have ended many past Chinese dynasties, the Mao Dynasty’s days may be numbered, as we’ve discussed in past Insights.