Sunday, October 19, 2008
Something that struck me whilst reading all the reports on the global markets. I should state a disclaimer that this is purely a speculative thought, without any solid evidence to back up any of my claims, so do not take my word for it, and definitely do not make any financial actions based on my word.
It's very common for economists to use the phrase if the States sneezes, the rest of the world will catch a cold. Why? Because the States is one of the leading world economies, and so if they crash, every market in the world will be affected some how. Past and recent market movements support that claim. Australia claims that its financial system is stable much due to the thanks of China. Thus, if China sneezes, the rest of the world will catch a cold, and no doubt, Australia will be at the head of the line at the doctor's office.
But many political leaders think that such an event is unlikely because China is a booming economy, and those who ride the boom together with China can probably survive the current crisis without much damage to their financial system. But here's what I thought. Not until recently, did the States finally admit that it was in a recession. Having admitted 'defeat', many firms started to cut jobs. No surprise there, and those who endured the Asian financial crisis should be aware of the retrenchment, and how much pain it caused.
So I ask, why is China's economy booming? I mean today almost everything we purchase was made in China, undoubtedly because of its cheap labour. This implies that their manufacturing industry has been growing quite well. Question: How many of us purchase products that originated from China? Take for example, the China car company that broke into the car market in Singapore. Nobody in Singapore would buy such a car for obvious reasons. The things that we purchase that are made in China, originated from MNC's in the States, in Europe, and from the leading economies in the world, most of which are crashing. If these firms start their job cuts, then won't the factories in China go as well? If so, then won't the thing that is leading China's boom disappear? Suddenly, China doesn't seem like a good safety net.
Having said that, I do agree that China has the potential to become a leading world economy much like the States, and Japan, but I think I can go to the extent and say that that potential has not yet been fully realised. And, if it is not realised, then aren't we all just hanging onto empty hope?
Well, its just speculation, and only time will tell if China can turn that potential into reality and save some of the major economies that are going down.
Dan
6:21 pm
