And the hits just keep on coming. Aside from the better-than-expected drop in first-time unemployment claims, another less talked about gem came out of the news this morning. Check out the excerpt below.
SHANGHAI (AFP) – China’s retail sales for the Lunar New Year holiday surged 19 percent year-on-year in one of the biggest rises in a decade, signaling a surge in domestic consumption, according to state media. “It underscores the initial success of China’s transformation to develop its economy through domestic consumption.”
This is terrific news for America, and the U.S. economy. China’s economic growth for too long has relied on selling the rest of the world lousy products for cheap prices. “Made in China” has come to mean cheap, cheap, cheap. China has understood for some time that to quell any future unrest in the country, it would have to begin building a middle class, a middle class that had real purchasing power. We have seen the budding of that power in the overheated Chinese real estate market, and in the ability of the well-to-do Chinese to buy imported cars, but in terms of simple, everyday domestic consumption, China has lagged. The numbers in the excerpt above suggest that the nut has been cracked, and this means good things for us, and the rest of the developed world.
On the one hand, if the trend continues, it means that China will need to increase imports to meet the rising demand for products. This means jobs for countries that export, such as the USA and Germany (as well as many others). With China’s billions wanting, willing, and able to buy more products, the demand will drive exports to that country. It could become the gaping market that many predicted some forty years ago when President Nixon opened the door to a new era of trade with the then purist communist country.
On the other hand, the fact that a middle class is finally rising in China implies rising incomes, which means the days of cheap, cheap, cheap may be coming to an end. The cost of labor is on the rise in China, and this means moving work to China because of its cheap labor will diminish. Eventually, some form or shape of labor parity will come into play. This also means more jobs for manufacturing countries, such as the USA and Germany (as well as many others), as it will become less cost-effective to move jobs to China.
I understand that there are more than a few underdeveloped economies (emerging) out there to pick up the slack in cheap labor, but the simple reality is that it is about the numbers. China has the largest population on this planet, and like the US economy, once a long-in-process transformation reaches critical mass, synergy takes hold and the momentum increases. We are now (finally) seeing the tipping point, which bodes well for both our short- and long-term economic future. It appears that the vision from some forty years ago is forming into reality, and if I am correct, it means that the USA and China will expand on the largest trading partnership the world has ever known.
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