Quite a Change

Aug. 22, 2012
Falling direct investment is sobering views of China’s future growth.

Remember when most Americans thought China was going to take over the world economically? There had been dire predictions for years by professionals that China would be larger than the U.S. by now, or in a few short years from now. That obviously has not happened, nor is it about to happen. The U.S. is 21.7% of the world’s GDP while China is number two at 10.5%. 

China was the beneficiary of a massive flow of funds and a rush to do business there. That flow of funds into China has slowed down dramatically. July witnessed the lowest level of direct investment into China in two years as confidence in the economy decreased. The annual moving total is heading lower off an October 2011 record high and the year-over-year comparisons are indicating more decline in the flow of funds in the coming quarters. 

China may be reducing banking reserve requirements and interest rates in an effort to boost economic activity and restore confidence. Stimulus spending can also be used to increase employment and activity. It is unlikely that this will cause a flood of investment into China. Money is moving to the U.S. and other countries. China has a lot of life left, but it is interesting to note the silence from the straight-line forecasters who predicted that we would be experiencing China’s global dominance.   

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