Credit Crunch Hits China

china map, chinese map, china country, chinese flag, china flag, china communismBy Jeff Voudrie
Many retired wealth investors and those developing retirement income strategies believe that China will pull the world out of its economic slump. As well, many investors in general believe that China will continue to achieve annual growth rates of at least 8%. But I’m not so sure.

Recent news shows that the credit crunch has hit one of China’s major manufacturing hubs, the Pearl River Delta region. Want China Times reports that the revenues of those companies guaranteeing a loan has fallen by 25-30% and that nearly 50% of them have suspended operations. Further, the Financial Affairs Office of the Guangdong provincial government estimates that ‘surety companies showing weak performance would be shut down by the end of August.

In my opinion, retired wealth investors and those seeking income in retirement should adjust their expectations of economic recovery occurring in the next few years. It is possible that China will experience a hard landing; demographic trends combined with the global debt-induced slowdown may result in China growth rates significantly less than 8%. Some have speculated that such growth rates may not be seen for extended periods of time. Thus the China ‘engine of growth’ may not have the horsepower needed to pull the United States out of our economic slump as well.

As a wealth manager dealing with retirees seeking to preserve and grow their portfolio, it is vital that I recognize the risk inherent in equity markets and adjust the amount allocated to it (and the strategies used accordingly). My thesis is that the equity markets will continue to remain highly volatile (as is common in Bear markets) and that conservative assets like bonds will continue to out-perform equities on a risk-adjusted basis.

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Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice.


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Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.