HARDLY a day goes by without news of yet another economic problem facing China. A frothy real estate market. Quickly rising wages. A weakening manufacturing sector. Tightening lending standards. The list can seem endless and frightening.
But after a recent visit to China, I remain staunchly optimistic that it will continue to be the world's greatest machine for economic expansion. While developed countries bump along with little growth, China's gross domestic product is expected to increase by 9.2 percent in 2011 and an equally astonishing 8.5 percent next year.
The country pulses with energy and success, a caldron of economic ambition larded with understandable self-confidence. Visit the General Motors plant on the outskirts of Shanghai and watch Buicks churned out by steadily moving assembly lines almost indistinguishable from those in plants in Michigan.
That shouldn't surprise, as G.M. strives for uniformity across its Chinese facilities. Perhaps more startling is that G.M. achieves American levels of productivity, quality and worker safety - with pay that is a small fraction of levels in the United States.
This illustrates China's great strength: its ability to relentlessly grind down costs by combining high labor efficiency with wages that remain extraordinarily low. At Foxconn's largest plant, in Shenzhen, 420,000 Chinese earning about $188 per month assemble electronic components for megacustomers like Apple, Hewlett-Packard and Dell.
David Fuller's view China will stumble from time to time, as
every country does. However, I have seen enough to remain convinced that it
will continue to grow in importance as an economic power.
In September 2007 China commenced the successful deflation of its stock market bubble. For the last two years it has been deflating its property bubble.
Growth economies are particularly bubble prone, which is different from saying that they are bubble economies.
With its high savings rate among individuals, where is China's next investment bubble likely to occur? The Chinese have shown an increasing interest in buying back their cultural heritage, mainly at auction houses around the world. They also like gold. I think it is only a matter of time before Chinese investors rediscover their stock market which currently trades on historically attractive valuations (see also next item below).