China’s slowdown will hurt South America
China’s slowdown will need to be well managed in the major South American economies of Argentina, Brazil and Venuszula or it will mean increased poverty and social unrest. This is the message from the China Business Summit for those willing to listen.
Whilst China was booming, populist policies with no accountability and combined high levels of corruption from within these countries could be papered over by the draining of Reserves and the plundering of Government coffers.
Now the financial situation has deteriorated. It will take skilled management to prevent social disasters taking place. In Brazil many of the 40 million poor who had been raised up into the middle class could easily end up returning to poverty.
The extremely incompetent governments of Venezuela and Argentina are coming to a tipping point. Change or collapse. With imminent elections the world will soon see which path they choose to follow.
Beijing-based investment advisor David Mahon delivered a sobering message to today’s China Business Summit – prepare for more bad news about the Chinese economy.
The New Zealander, who has lived in China since 1984, said the world’s most populous nation was heading into a difficult couple of years.
Chinese economic growth – which has dipped below 7 per cent, according to official figures – is slowing as the country’s leaders try to transition the economy towards domestic consumption away from export and investment-led expansion.
Mahon, chief executive of Mahon China, said moribund international demand for Chinese products was also putting huge pressure on the economy.
“It finds itself as a country with massive surpluses [of products such cement and steel],” he said.
“We’ve got two difficult years ahead of us, but I think we’ll get through it – I don’t see an investment armageddon coming.”
Andrew Browne, China columnist at the Wall Street Journal, told the summit that the immediate challenge facing Chinese leaders was finding a balance between contradictory policies.
For example, the country wanted to encourage innovation and replicate the success of firms including Chinese e-commerce giant Alibaba.
However, innovation implied disruption, which jarred with the Communist Party’s “obsession” with control, Browne said.
He said the Chinese economy was doing “considerably worse” than official figures suggested.
“Real estate is 25 per cent of Chinese GDP – you have to include steel, cement and glass,” Browne said.
“The problem is we’ve had 10 years of hyper investment and now there is a plethora of empty apartments. It’s going to take years and years for this surplus to reduce down to normal levels.”
He said the ballooning debt of Chinese corporates – especially those heavily affected by the slowdown, such as steel and mining firms – was another major challenge.
“You’re looking at a massive build-up of bad debt within the banking system which is going to constrain Chinese growth.”
The voters have been warned but will they listen.