SHANGHAI, China – For the past decade and a half, the Chinese economy had been booming. Major construction projects were undertaken by the government and by corporations as the country experienced a great surge of wealth and affluence. Once seen as a lesser country by many in the Western world, China proved that it had what it takes to be a super power and major player in the world’s economy and affairs. The sheer number of citizens in China makes them one of the world’s largest consumers by design, but their abundance on manpower also makes them capable of being the world’s greatest producers. Given that there are over 1 billion people living within China’s borders, there is no shortage of labor available which drives the cost of that labor downward.
China’s Economic Downfall Could Restore America’s Economic Power
A Dragon Awakens:
As the year 2000 came to be, China was well on its way to expanding their infrastructure and improving their country’s standard of living. Major businesses who take advantage of China’s cheap and capable labor were exporting goods at outstanding rates to foreign countries, which brought China a great wealth of income. China shipped out produced goods, and got currency and wealth in return. They used that cash flow to fund their expansion within their borders, which resulted in the building of countless houses, businesses, and facilities. This all required China to become a major consumer in their own right.
China had one major problem when it came to feeding their expansion, and that was a lack of available resources. Sure, the country of China contains gigantic caches of metals and materials but the rate at which they were needing to be consumed would require a world of support. China became the world’s largest purchaser of crude oil, metals, and other vital resources to fuel their grand designs. As the law of supply and demand dictate, when the demand soars so too does the price. China’s rate of consumption caused the prices of metals and oil to sky rocket over the past decade and a half. Everything from new materials to recycled materials suddenly became significantly more expensive overnight.
Is China’s Bubble About To Burst?
After spending more than their fair share of supplies on their construction projects, China has finally seemed to take a step back in their progress. We are currently at a time where China’s demand for foreign resources has declined significantly, but not because they have found alternative sources. New construction and consumption in China appears to be coming to an abrupt end. Americans and others around the world are first feeling these effects of this potential bubble burst at the gas pump. If you have been paying attention to the prices, you will notice that the price of gasoline has fallen by roughly $1.00 per gallon in the past months. The price of a barrel of crude oil is at a 4-5 year low, and it is expected to remain there or even fall further.
Metal prices are still sitting somewhat high, but they are looking to rebound to lower levels in the near future too. While we are looking at a decline in pricing for these raw materials, some might assume that we are also looking at the potential collapse of a market. In truth we may be looking at the collapse of China’s market, but this could have a good outcome for America and other countries. America, who is a major consumer of Chinese goods, could soon see a reduction in the cost of goods sold by China, as their economy begins to settle down to wherever it may eventually end up. Businesses who were once accustomed to receiving large demands for their goods may soon be looking to lower their prices to stay afloat in a stagnant market.
What Does This Mean For America?
If you are old enough to have been around during the 1980’s and 1990’s, you may remember what it was like to be in America at a time when our markets were booming. Business was big, and budgets were even bigger. The average American consumer enjoyed a greater amount of disposable income, and it looked like the sky was the limit. Some may hope that we have learned a little from out turn and burn behavior of those times, but there were aspects of it that are still appealing.
American’s may gain back some of their buying power as a reduction in the cost of goods would mean more value to the dollar, and more potential profits for the businesses that cut our paychecks. This slump in China’s economy would be an eventual godsend for the American dollar, who has worked hard to recover from the recession of 2009. We may not yet be fully in the clear, but we seem to be enjoying our view of the light at the end of the tunnel.
America will not be alone in reveling in the benefits that will come with a redistribution of wealth and power. It is expected that other European markets will also see gains as a result of the shuffling of wealth. This situation will also create favorable conditions for those nations (America included) that still need to repay China for some of the substantial loans that were taken out to help recover from our own economic disasters.
The facts are still not 100% clear, but the trend seems to be set. This is not a time to simply sit back and relax, this is a changing condition that presents a different set of opportunities to take advantage of if you are looking to get ahead. Take the time to analyze the changing economic climate, as some retail prices drop and housing prices rise. Those who emerged as financially successful during the recession may soon need to realize that the game is about to completely change.
China’s Economic Downfall Could Restore America’s Economic Power.