Bill Owens: Are China's Economic Dynamics Changing?

Sep 5, 2017

A recent story in the Wall Street Journal indicated that Alibaba’s revenue will grow fifty percent (50%) due to an increase in sales to China’s growing middle class.  The dynamics of that reality may well cause a shift in Chinese production towards its own middle class, and thus, a shift in the utilization of resources for that production.  The level of Chinese exports to the United States in 2015 was $483,188,700,000 and 2016 was $462,618,100,000, resulting in a U.S. trade deficit during each of those years of $367,256,700,000  and $347,016,000,000  respectively. The deficit this year is trending toward $341,000,000.  McKenzie & Company has recently reported that seventy-six percent (76%) of China’s urban population will be considered middle class by 2022, which is an increase of seventy-two percent (72%) from 2000, and that represents about 550,000,000 people. McKenzie also posits that those middle class households will be making more money, and thus, have more disposable income. Chinese consumption is anticipated to grow by nine percent (9%) a year through 2020, with overall growth in the consumer economy being fifty-five percent (55%), resulting in total consumer spending of $6.5 trillion in China. $6.5 trillion is about 1/3 of our current GDP. China consumes immense amounts of raw materials, energy and food including 54% of the world’s production of aluminum, 48% of copper, 50% of nickel, 45% of all steel, 60% of concrete, 33% of rice, 49% of coal and 12% of oil.  These stats are impressive, but what might they mean?

If the Chinese are to satisfy the demands of their growing consumption minded middleclass, they will have to determine whether or not they can continue to produce goods for both their domestic market and their export market.  This takes on added significance due to their tremendous reliance on raw materials, their need for food, and whether or not they can maintain adequate access to raw materials to be able to meet demands of both markets.  Obviously, as their middle class population grows and becomes wealthier, the Chinese middleclass will gain the ability to impact political outcomes.  Does this mean that we may see a decline in imports from China, but is that simply taken up by other Asian and southeast Asian countries, or will the U.S. have to look for other sources for these imports?

Does this growth in middle class purchasing portend a return of manufacturing to the United States, or simply a shift to other low cost countries in Asia and Southeast Asia?  Many economists believe that it is unlikely that the production of low value goods will ever return to the United States, and even if it did it would likely be heavily automated, thus, not resulting in a substantive increase in jobs. Other than India, the countries that might benefit from a shift in production locations tend to be smaller and less developed. 

If these events result in a decrease in exports to the U.S., we would not be supplying the Chinese with substantial amounts of U.S. currency and potentially decrease China’s economic capacity to engage in disruptive economic and military activities.  This does not mean that the Chinese won’t see continued significant increases in GDP, but it would be internally or organically generated, rather than primarily generated through exports.  The counter balance to that thought is that it may well place the Chinese in a position where they are less dependent upon the U.S. from an economic standpoint, and therefore our negotiating ability with them may also decline. 

The relationship between China and the U.S., on all fronts – economic, diplomatic and militarily is an evolving and potentially volatile process. 

Mr. Owens is a former member of Congress representing the New York 21st, a partner in Stafford Owens in Plattsburgh, NY.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.