By Andrew Nyquist
For much of the late 90’s and early 2000’s, China enjoyed the West’s addiction to low cost manufactured goods. Western-driven demand spurred exports and pushed Chinese GDP figures to double-digits. The more the West “off-shored,” the more China produced. Couple this with a pro-growth monetary policy and infinite political capital, and China’s star was rising… and fast. But just as China was positioning for a power seat at the global economic table, the sub-prime mortgage crisis took hold and quickly evolved into a full-fledged global debt crisis.
Headlines out of the U.S.and Europe swamped the Chinese economic story. The global economy soon ground to a halt, and the battle for economic revival has since been a difficult one. And it’s focus has centered squarely on the West. Furthermore, the European Sovereign Debt Crisis has kept market participants on their toes, adding to the volatility in the marketplace… as well as the news outlets. And even further, the social worm has started to turn with anti Wall Street and anti political rhetoric heating up and captivating the world’s attention.
But, odd as it may sound, the continued focus on the West has been a good thing for the Chinese. With both GDP and inflation running red-hot, and varying political issues surrounding their currency, China has been granted a time-out of sorts. Or, at a minimum, a chance to slip out of the spotlight and focus on certain domestic economic policies to battle issues like higher than targeted inflation and a growing real-estate bubble. And by all accounts, they have needed this time away, for the global slowdown has had a minimal effect on Chinese GDP (see chart below).
Although it is too early to tell, this focus may finally be paying dividends for the Chinese. Current industrial output and inflation data indicate a healthy cooling of sorts. Recent inflation data registered at 5.5%, a high number by Western economic standards (however you define that!), but one that Chinese officials view as a move in the right direction. Furthermore, slowing inflation will allow officials to further stimulate the economy should it slow measurably due to enacted domestic policy or global demand.
China is biding its time. It’s time will come. For sooner or later, and for better or worse, the global debt crisis will run its course. And when that time comes, China wants to be ready to emerge from the shadows and into the spotlight as a global leader. As Todd Harrison so astutely states, “The leaders coming out of a crisis are rarely the same as those who enter it.”
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