Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Tuesday, 5 April 2016

End of China?

There have been strong volatility in the local market as we saw big drastic movements in the recent weeks. Daily STI could swing 1%+ up or down. It is evident that the increase in global volatility and swings were caused by the announcements made by key players in the financial world.

One of the announcements came from Federal Reserve Chairperson Janet Yellen who kept interest rates unchanges but remains wary of the fluctuation in oil prices as well as the global economic developments, particularly in China.

With the wide news coverage of China's economic performance, it is not unusual to know that China's economy is not performing as well as it used to and is slowing down at an alarming rate (Although it is still outperforming Singapore's growth; 3% compared to 6.5% in China).
So now what is this big hoo-hah with China's economy that is worrying most of the world's leaders?

China's economic growth engine is slowing down and it is mainly due to one reason: The end of its migrant boom. Its rural population have stopped moving into the cities and those who have moved in the past are returning to their rural towns. The explosive economic boom made possible through the migration of cheap labour from rural cities is starting to face exhaustion from raising labour cost and diminishing productivity returns. This is due to the discrepancy of supply and demand in their labour's skill set. Low-skilled workers are losing their jobs as China moves up the value curve to "middle-skilled jobs and, in many coastal cities, to upper-level sophisticated jobs - competing with the middle-class everywhere.". (quoted from DPM Tharman Shanmugaratnam in View China's economic woes in perspective': Tharman,).

To understand more about the migrant-led economic boom, you can refer to this video which is very informative on the phenomena:

However, I feel that China is not completely buried in the grave; it can still help itself in its current predicament. Firstly, the current situation had been experienced by many developed countries where there is a displacement of labour workers to higher value service workers. Hence, it has some case studies to follow and mimic according to its current situation. It has the resources and power to smoothen and ease the labour transition.

Secondly, the current predicament may present itself as a opportunity for China as workers move back to the rural areas, bringing with them capital and experience. If given the necessary push and policies, a more even growth can be attained, boosting the general economic growth since urban cities usually have a lower growth opportunity due to their inherent peak productivity performance derived from structural benefits.

Singapore, being extremely dependent on China's performance due to its close trading relationship, would definitely experience the impact from China's stance and reactions to its current status. Hence, it is important to know how our neighbouring countries are performing.

Please feel free to drop us a comment below and share on the video or posts to let others be aware of the current region.
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  1. Hi China is just going thru what US had gone thru in the 70s when usa steel mills go bankrupt and they eventually transit into a local consumption economy and do well in 80s & 90s.

    USA 300mil population vs China 1.5b. As long as one chinese is 20% more productive, China should be able to match USA or surpass them.

    The biggest problem is the delicate handling during this difficult times in transition. This means workers previously in heavy industry have to re train and re adapt into the local consumption industry. The efficient SOR had to go.

    And China will be weakened considerably in the short run and require good leadership in the delicate situation. If they pass this phase, they will be just fine and should go on to become the next super power! Just my opinionated views!

    1. Hi Rolf,

      I am glad someone agrees with me. While the news coverage and sentiment are mostly negative, I feel that it might not be necessarily true and the outcome depends heavily on how the Chinese leaders are able to smoothen out this critical transition. If this can be done with more positives than negatives (it need not even be perfect), China would definitely be climbing towards being the next global influencer.

      Zi Chao

    2. Rolf a few points.
      1. China started late in this game. Should have started in the 2000s to make full use if their demographics. Demographically, they are at least one business cycle behind.
      2. Politically, they were not allowed to start earlier.
      3. Demographics is against them.
      4. Politics is against them.
      5. They have th3 advantage of singlemindedness.
      6. India is extremely interesting. Worth a bet. But timing is crucial.

    3. SMK,

      Good analysis.

      Slight different views about China and India. :-)

      Read :