News that a measure of manufacturing activity in China took a tick up in February put analysts into a fever of excitement. The Shanghai Composite moved up 6%.
The rally is based on a mirage. China’s economy cannot grow at any significant rate without the US, Japan, UK, and EU consumers returning to the marketplace.
The idea that China can dig itself out of the hole of the global economic recession may be based in part on stimulus money that the communist central government is throwing at industry to keep it afloat in the world’s most populous nation. Capital injected into the economy may even lead to spending by the Chinese middle class. This group has helped build the nation’s economy by consuming a good portion of China’s own production.
But, the effects of the stimulus will be short-lived. As demand for China’s exports drops, GDP and factory output will be affected. China’s middle class may actually be shrinking as factories close and workers return to the rural regions.
There will be no Chinese miracle. The deck of the global economy is stacked against the country.
Douglas A. McIntyre
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