Seven straight months of Chinese economic contraction suggested by one leading indicator means that the world’s second largest economy is probably in decline – although expert Gordon Chang took it one step further Friday.
“It’s also probable,” he said on CNBC’s “The Kudlow Report.”
Chang, author of “The Coming Collapse of China” and a Forbes contributor, held a bearish outlook that looks beyond the official Communist Party line.
“China has basically been a parasite for the past 10 years, using unfair trade practices to basically take away the manufacturing bases of Europe the United States,” he said.
“These are very perilous times for the global economy. I think it’s really important for everyone to understand this is not a short-term cyclical problem,” he said. “It’s a structural story that’s going to end in China, probably with a real estate bubble collapsing worse than what we had here.”
China faces the same challenge as the United States and other industrialized countries faced with an exponential growth in the non-human factor of production where most products are exponentially made by physical capital.
China also faces a decrease in consumption in the developed countries of its manufactured products. China’s consumption is only a little more than France’s, a little less than Germany’s and around one eighth of U.S. consumption.
China’s median household income is around $6,000, less than 20 percent of that in the U.S. where it is about $45,000. There is a growing number of consumers, around 100 to 150 million, which is expected to double in the next five years. But a large portion of China consists of poor people whose subsistent income levels allow the purchase only of basic foods and other necessities.
While Chinese labor is becoming more expensive over time, it’s still much cheaper than the U.S. or Europe. The ratio of price to quality is still, at this time, far more favorable for production in China.
While China has a billion-plus population, mostly unskilled, the country is engaged in investment in heavy machinery to help China increase its share of global exports and enable its state-owned companies to upgrade to overcome labor costs and shortages.
Workers account for about one-third of costs in labor-intensive sectors. China’s economic expansion is now focused on investment in new productive capital machinery with capital investment spurred by China’s state-controlled banks.
But, as with the U.S. and other developed countries, China continues to concentrate ownership of its productive capital assets in a minority of privileged and politically favored individuals, denying the ordinary Chinese man and woman access to earnings produced by productive capital ownership.
To compete with and far surpass China, America must engage in an all-out initiative to extend pure capital credit to ALL Americans to acquire viable private, individual ownership portfolios in business corporations and companies to expand American-made productive capital capabilities. Such investments can be accomplished using commercial banking insurance and Federal Reserve reinsurance, with the loans paid back out of the future earnings (future savings) of the investments.
