Wry & Dry

China: questions about growth

W&D is now in Hong Kong. And the issue here, aside from the market gyrations, is what is going on with the Chinese economy?

The main matter to observe, again, is that it is not growing at 7% p.a. W&D sees it all as top-down ‘smoothing’. When the government said in the past that the economy was growing at 10% p.a. it was probably growing at 12% p.a.

Now, as the rate of growth slows, the reverse is the case. Wise heads here suggest GDP growth is more like 5%. To get to this figure they use another estimate, the ‘Li Keqiang index’, which is a composite of indicators such as electricity production and freight volumes.

There are considerable growing pains in the Chinese economy, as (looking at it very simply) it moves from an agrarian society through to a manufacturing society to a services economy.

Given the size of the economy, its growing pains ripple to the rest of Asia, and, to a lesser extent, the US and Europe. Quarry Australia will still be exporting commodities to China, but at much lower prices.

W&D hopes that the man now in charge of the quarry (Mr Turnbull) realises that the government and the broader economy can no longer rely on the rivers of cash from the quarry. Reforms are needed to invigorate the rest of the economy.

-       Anthony Starkins

[1] Napoleon’s ‘march on Moscow’ in June 1812 was an attempt to engage and defeat the Russian army. Napoleon hoped to compel Tsar Alexander I of Russia to cease trading with British merchants through proxies in an effort to pressure the UK to sue for peace.

But the Russian army fell back before Napoleon invading army of 680,000; burning villages, towns and crops. This scorched earth policy deprived Napoleon’s army of supplies and began to cause starvation. By the time Napoleon got to Moscow, he found it empty. In a brilliant move, the Russians had evacuated the city.

Then winter came. The rest, as they say, is history. The short story is that Napoleon retreated and returned to Paris. He had just 27,000 soldiers remaining.