CFSGAM senior investment analyst James White said the growth of China will “generate productivity benefits internally and externally” while its “ability to create super-competitive industries will transform many global markets, often in innovative ways”.
As a result, Mr White said China’s growth will mean that economic global order is continually disrupted.
He believes the main challenge for the developed world resulting from Chinese economic success is deflation, since it was clearly a contributing factor to the global financial crisis and destroys the “competitiveness of large portions of developed economy industries”.
While the entry of China into the international economy has improved global living standards and led to an expansion in the benefits of manufactured technologies, China has also been a “deflationary force” and “great destroyer of capital”, said Mr White.
Mr White said there are strong similarities between the opening up of the United States’ continental economy from Civil War onwards and China’s global economic expansion today.
“As with China, the US deflation was exported globally, leading to weak economic growth across the world with financial crises and the emergence of higher trade barriers,” he said.
Mr White said as Canada and the US became more competitive, Chile lost its global wheat and copper markets and France endured a number of bank collapses that almost led the entire nation to bankruptcy.
He said the European financial collapse was mainly due to European investment in US railroads.
“They were funding the very thing that destroyed output in their own economies,” he said.
“The USA’s emergence destroyed the assumptions on which the global economic system had been established to that point – the old order had been upset.”
Mr White said China’s emergence has similarly contributed to the “financial panics and an existential cry from the developed world”.
“China is challenging the existing economic order, just as the United States disrupted the order of the Old World,” he said.
According to Mr White, too often our understanding of China is based on its “supposed fragilities” when it’s China’s strengths that should be the “concern of the developed world and financial markets”.
Mr White said the evidence for China’s emergence is substantial, with growth and price outcomes unequalled.
“The proof is in the numbers – not just headline growth, but stable and low inflation, strong wage growth and rising tax revenue,” he said.
China is increasing its global market share and prices are falling even with the increase in wages and currency.
Mr White said China’s growth will continue to challenge the global economy, particularly developed economies, until the “Chinese engine is harnessed”.
“The challenge for the developed world is to harness this engine of productivity, not to work against it,” he said.
