Stronger China Helps Balance the World Economy

According to a recent The Economist article, this year, for the first time, China is contributing more to global GDP growth (measured at market exchange rates) than the United States. China and other emerging economies have become powerful new engines to balance the world economy when America is facing a risk of recession.

When I was traveling in China, I could see there is a lot of optimism and confidence in people everywhere about China’s future. Although they are worried about their children’s education, social security, etc. in general, people believe China is going to get better. Even the economists don’t see many threats to cause China’s economy to collapse in the near future.

Interestingly enough, as the article indicates, “China is one of the few parts of the world without a housing bubble.” Although housing prices have increased several fold, the article says, “the ratio of house prices to average income has fallen by 25% in China since 1999.” This explains why some people I interviewed own more than one apartment, and some still want to buy more.

Here is another picture of a Chinese middle class family:

The article also discusses the other myths about China such as export-led growth and increased labor cost. There are indications that a growing middle class is driving domestic consumption, in spite of their high savings; and labor productivity has increased faster than the rise of average wages.

This is a photo of the neighborhood of my parents’ home. Five years ago, it was packed with bicycles. But now, it’s parked with cars.

The article goes on to say that China’s long term prospects are strong because its economic success has been based on high savings, openness to trade, good education and strong productivity. “As China has grown, it has come to matter much more to the rest of the world.” China is now a force for stabilizing the world economy and it’s good for the world.

A Growing Middle Class in China

Someone forwarded me an article “China’s Illusory Middle Class Market” by BusinessWeek a while ago, questioning whether there is middle class in China and if it changes anything at all.

I have just returned from China, interviewing people for my upcoming book on the emerging middle class in China. Clearly, no doubt that there is a growing middle class in China, mostly in coastal urban areas at this time. I have talked to many people – almost all of them own homes, and a lot of them have cars.

This is a picture of the home of a typical middle class family in Hangzhou, a second tier city southwest of Shanghai.

My current experience tells me that the Goldman Sachs report that the Chinese middle class will reach 650 million by 2015 is not too optimistic. At least I know the statement cited in the article that “many Chinese may purchase virtually nothing else for years before buying a car” is not true.

In reality, a lot of wealth was created in individual hands in just these few years. I visited IKEA and local department stores – they are literally fully fully packed! My sister bought two pairs of shoes while visiting a department store with me, and my mother said she just bought four pairs of shoes a few weeks ago!

I would say, taking into consideration purchasing power parity, the middle class people I met there have more or less the same level of affluence of average people here in the Bay Area.