A shift from the predominant producer to a consumer society as getting implemented by the Chinese government, will eventually balance supply and demand but may push the Gross Domestic Product (GDP) close to zero.
While the overall population growth has stabilized, the ratio of elderly people to the working population keeps increasing, as it does in all developed countries. While this absorbs demand for consumer goods it does not, in itself, increase GDP. Much of the current GDP growth has been achieved by too much credit. The inability to service such debt has led to the insolvency of a growing number of Chinese companies.
Official statistics already show the effects of the shift from industrial to the service sector. The latter grows at a rate of bout 10 percent, while the industrial area lags well below the 2017 official growth rate of 6.5 percent. This is due to the fact that the Chinese industry has pretty well caught up with adapting of all Western industrial innovations. The commercial airplane, just coming into service, was the last big item.
Thus China reaches an economic state akin to that of Japan in 1984.
The Chinese government is well aware of the quagmire and is allocating billions of dollars budgets to foster "innovation" in order to fill the factories. Also, as is well known, money by itself can not invent things.
This lack of unique new products contributes to the coming slide in GDP which, off course, will affect all of China’s trading partners, including the U.S.
Another effect of reducing GDP is the in 2016 started policy to dismantle coal mines and steel mills. For example, the first 2017 quarter growth forecast for the province of Liaoning (a location which is heavy with steel mills) showed a GDP increase of only 2.4 percent.
One must also show a degree of skepticism when reading GDP statistics. It was reported, for example, that another Chinese province chief admitted that he fudged in the past GDP numbers thus avoiding being embarrassed in front of the Central Party Committee. He vowed "to eliminate bubbles in statistics" in the future.
Maintaining a decent GDP growth is more and more difficult due to the compounding effect. For example, in order to achieve a GDP of 6.5 percent, the economy has to grow by including 6.7 percent (last years number) which makes the real required growth 6.7 percent x 1.065 = 7.1 percent over, where the economy was at the beginning of 2016.
All this makes President Trump’s 3 percent growth rate even harder to achieve.
On the energy side, China now has become a major producer of shale gas. The production increased 76 percent during the last twelve months to a record 200 billion cubic feet. As a result, the Chinese government is expediting the replacement of coal with gas.
Finally, in line with the IMF directive, China too is pushing to replace cash by using electronic payment forms.
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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