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Revisiting China as Its Growth Slows

Revisiting China as Its Growth Slows
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Friday, 21 June 2019 12:35 PM Current | Bio | Archive

China, our most important economic rival, is undergoing important changes which could affect our future economic and military relationship with our largest economic rival.

First of all, China’s era of rapid growth has come to an end where increases in Gross Domestic Product (GDP) for 2019 will only reach 6% to 6.5%.

There are a number of reasons. First, the Chinese export market is close to being saturated and the percentage of working men and women is declining. The reason is that there are less child-bearing women. Secondly, despite the initial excitement over the 2015 passed law to allow a second child per family, the reality has set in and the current new birth rate is actually reduced from 12.8 births per 1000 in 2015 down to 10.8 per 1000 people in 2018. This is even less than the current low U.S. birth rate of 11.8 per 1000. One reason given was that it takes $120,000 to $150,000 of yearly family income to bring up an extra child.

The long-term effect is of course the inability to support elderly people. There are now 250 million persons in China aged over sixty years.

In order to manage even a six percent growth in GDP and to keep the 4.5% un-employment rate from growing, the Chinese government, while realizing that the manufacturing sector is stalling out, invested and supported the service sector of the economy, which now approaches 70% of GDP. In 2018, the service sector contributed more than half of the overall growth in GDP.

Another indicator of a slowing economy is the fact that the 2018 Chinese Consumer Price Index only increased by 2.1%.

One incentive used to aid growth was the recent reduction of the value-added-tax from 16 to 13 percent. Finally a boost of export business especially to Middle East and European countries is expected from the Belt-and-Road Initiative which is now beginning to get fully operational.

For example, in March 2019 a freight train traveled uninterrupted from Zhengzhou to Liege in Belgium; not an easy feat considering the many different railroad gauge sizes.

While we may gloat about China’s economic problems, it does have a number of negative effects on the world economy and, by implication, on the U.S. economy.

Here is a real economic threat: Due to the fact that during the past decades we trained thousands of gifted Chinese students at our top Universities such as Berkley and MIT, this combined with massive Chinese Government subsidies enabled Chinese electronic companies to jump ahead of the U.S. We see it in the Chinese dominance in the ultra-high frequency equipment (commonly called 5G) market which is poised to dominate the world market and which is trying to get a foot-hold in the U.S. This is the reason for President Trump’s effort to fight the Huawaei Company. After all, tremendous volume of tele-equipment such as new smart phones is at stake. The question is: Why don’t we have an equivalent company to Huawaei, and why do we spend hundreds of billions of tax dollars on “basic research,” such Mars travel, instead of supporting applied science such as R&D efforts?

The other problem President Trump can’t solve is the treat to U.S. hegemony and to the dominance of the U.S. dollar. Since the 2018 establishment of the Chinese RMB oil futures, meaning one can now sell and buy oil in renminbi (Yuan) instead of U.S. dollars. To make it attractive, China is backing their currency in gold. This may be one reason for the current increase on gold prices. I commented on this development in my blog of December 17, 2017. According to BARRONS, 13% of all oil contracts are now traded in renminbi in Shanghai.

As part of the going trade war, China has curtailed tourist travel to the U.S. and has prohibited foreign investments in their precious rare metal assets.

By-the-way:

As a sign of common sense, at least in my opinion, the subject of “green energy” was not even on the agenda at the March 1, 2019, People’s Congress meeting and, following the U.S. lead, China has greatly reduced the subsidies for electric cars.

However, it encouraged the development of “driverless” cars. The leading manufacturer expects to deliver 10,000 cars this year. Although, their use is expect to be limited to “low speed sites” such as campuses, industrial parks, and residential areas.

Talking of “green cars,” the WSJ just published the results of a German think tank study comparing the carbon emissions between a Mercedes diesel and a Tesla model 3 (electric car).

The results: The diesel produced 50 pounds of carbon (CO2) per 100 miles against 64 pounds of carbon produced by the electric car, accounting for all the fuel produced and transported to charge the battery. That is 32% more CO2 than a conventional car! My own study comparing electric vs. gasoline cars revealed an even greater percentage of carbon use by electric cars and their power plants compared to gasoline powered cars. (See my blog 7-17-2017). So much for the touted: “Saving CO2”. Do I feel vindicated? Also revealed by this study was the claim that it takes 30 pounds (13.6 Kg) of carbon per 100 miles (160 Km) just to MAKE the battery!

No matter what the media tells you, the fact remains that an average electric car produces 1.5 times the amount of CO2 compared to a gasoline powered automobile.

As a post-script on my March 19, 2019, blog of “It was great to be a banker,” you may like to know that there are enough bonds held by U.S. banks that this year the U.S. treasury still has to pay 38 billion dollars in interest to the banks.

Hans Baumann is a licensed engineer in four states and a member of Sigma Xi, the Scientific Research Society. He is an adviser to the dean of the University of New Hampshire Business School. Dr. Baumann has published manuals on valves and was a contributor to many works including the "Instrument Engineers' Handbook" and the "Control Valves Handbook." He has also published several books on business management and German history, including "Hitler's Escape," which suggests that Adolf Hitler did not commit suicide and survived World War II. In his latest book, "Atomic Irony" he proves that the Hirshoma Atom Bomb contained captured German Uranium. For more of his reports, Go Here Now.

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China, our most important economic rival, is undergoing important changes which could affect our future economic and military relationship with our largest economic rival.
china, growth, economy
1069
2019-35-21
Friday, 21 June 2019 12:35 PM
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