Meet Kevin: The Insane China Problem
There are two views when it comes to China’s economy. The first is that the country’s rapid growth over the past few decades is sustainable. And that demand from its 1.4 billion citizens will lead to continued profits for the makers of consumer and luxury goods.
The second view is that the country has focused on its economic growth without creating significant value. That can be seen with the country’s investment in real estate, and by creating giant, but empty, cities.
So far, markets have given more credence to the first view. China ended its harsh lockdown policies late last year. Its citizens are now freer to move about the country, even at the risk of catching Covid.
That’s thought to lead to a spike in demand for a number of goods and resources, particularly energy. A strong jump in demand there could keep energy prices higher, and help fuel inflation in the U.S.
So far, global oil prices have been fairly steady. That suggests that the spike in demand hasn’t occurred. And looking at excess savings in Chinese households, it’s clear that there isn’t much room for a further rise in demand.
That suggests that Chinese growth will be lower than expected. And with it, global growth. The good news? It likely won’t lead to a spike in inflation elsewhere around the world.