An article appeared in the September 3rd edition of the Economist Magazine [Australia’s Economy – Good on you] from which one line jumped out at me. ‘As China rebalanced and commodity prices tumbled,..’ it began. This was the first time I’d seen in print an acknowledgment that China’s economy is fully in rebalance mode.
The paper highlighted this week from Guonan Ma, Ivan Roberts and Gerard Kelly, a non-resident scholar of Breugel and the latter from the Economic Group of the Royal Bank of Australia looks in detail at what rebalancing will mean over the longer term, especially for China’s major trading partners [This is a really dense one so I suggest you go straight to the conclusion on P. 42 if you don’t have time for the full read].
Bottom line; a full rebalance, which will take a long time, can most likely only be achieved by slowing investment and not by boosting the growth rate of consumption. This is turn will lead to sizeable negative effects for capital goods exports for the likes of Germany and Japan and commodity producers like Australia, Brazil and Canada.
This is a pattern observed in other economies that have been through a similar transition and there’s no reason to believe China will be able to avoid developing in this way. New-normal may then be in the process of becoming just plain normal; a condition that’ll prevail for a long time to come.
Don’t shoot the messenger.
Happy Sunday