Tech Won’t Save China, but This Could

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Aussie farmers are under attack. Or they soon could be…

An animal activist group just posted a map online. The map shows the location of hundreds of Aussie farms and abattoirs.

Anyone with the mind to could rock up and do some damage.

It’s why president of the National Farmers’ Federation (NFF) Fiona Simon said the farmers ‘are rightly distressed that their name has incorrectly been linked to animal cruelty’.

The NFF now wants regulators to strip the activist group of their not-for-profit status. They also want them booted off social media.

They [farmers] are extremely anxious and very angry that their workplace, and their home, has become the target of extreme and dangerous activities,’ Fiona added.

The animal activists could get their wish, though. Aussie farms might be few and far between as our largest trading partner starts their slow and painful decline.

The growing Chinese middle class could translate into a massive investment opportunity for Australians. Get the details here.

Tech’s not going to cut it

Our biggest exports to China are ore, slag and ash. But we also export billions worth of wool, animal hair, meats and leather.

What happens when that demand, worth billions, declines?

Survival of the fittest farm, I guess.

Those farms that took on too much debt. Those that are less efficient from the rest. Those that are too far from port. They might all need serious funds. Funds graciously stolen from taxpayers.

According to the Aussie treasurer, China’s growth hasn’t been this low since 2009. From the Australian Financial Review:

Australia faces a continuing deceleration in the world economy, with a new report by the IMF outlining a key global risk is a greater-than-anticipated China slowdown that would hit its foreign trading partners and commodity producing economies – like Australia – hardest.

China’s economy slowed to its lowest rate of growth in a decade in the fourth quarter, expanding 6.4 per cent compared to a year earlier, in line with economists’ expectations, official government data published on Monday showed.

The IMF cut its global growth forecasts for 2019 and 2020 and admitted recent weakness in economic data around the world was likely to persist over coming months.

But technology could save the Middle Kingdom, right? All China needs to do is produce more stuff and do it more efficiently.

It will increase output and spur their economy to keep growing…that’s what I used to think.

But the problem isn’t a production one. China is wonderful at producing cheap manufactured goods. The problem is on the demand side.

Manufacturing productivity is growing at a much faster rate than demand. And because there’s finite demand for goods, Chinese businesses have little incentive to keep making stuff for buyers that don’t exist.

Why do you think Chinese growth was so slow in 2009?

US consumption dropped. American businesses put international purchases temporarily on hold. The Chinese manufacturing landscape adjusted with a couple of factories going bust.

Millions of Chinese were out of a job.

It wasn’t until US consumption picked back up that China started to produce more, returning to high growth status.

The only difference this time is that China is getting ever so close to that turning point. It’s the point where manufacturers are selling too many goods into existing demand.

This also happens to be the reason why Germany and Japan are slowing too. Both are manufacturing-led economies. Both benefit from huge trade surpluses at the expense of other countries.

While manufacturing did wonders for China, Germany and Japan, it’s now one of their biggest hurdles.

And technology isn’t going to save them…

What will save China and our farmers?

What is China doing to stop the manufacture bleeding?

They’re building a whole lot of stuff. Economist from Capital Economics, Julian Evans-Pritchard said:

The latest data suggests that economic growth remained weak at the end of 2018 but held up better than many feared, in part thanks to a policy-driven recovery in infrastructure spending.

You might’ve even heard of China’s ambitious One Belt One Road plan. It’s a mega infrastructure blueprint to extend China’s trade reach around the world.

This could reduce their dependence on US purchases. However, it sounds a lot like the socialist infrastructure policies going on in Japan.

Japan is the level up from China. They’re the advanced manufacturing nation. And their factories require very few people.

In fact, there are generally more employees on the loading dock than there is in the factories.

So how does Japan have such low unemployment if little to no employees are in these factories? The government uses taxpayer’s money and debt to build roads and bridges to nowhere.

Investment Week writes:

Let’s not forget unemployment, which is at a record 5%. In order to create jobs, Tokyo has borrowed tens of trillions of yen to build unnecessary roads, bridges and dams.

Now that Japan has poured concrete everywhere and even reclaimed land from the sea on which to pour more it has resorted to repaving roads no one uses.

It’s akin to paying people to dig holes and fill them again.

While China’s infrastructure aim is to boost trade, I wouldn’t put it past policy makers as a quick fix to give consumers handouts in the form of useless jobs.

So, if not technology or infrastructure, what does China need to do?

I believe the solution is obvious. Chinese needs to continue empowering their billion-plus population and push them into services (the tertiary sector).

The push has already happened to an extent.

MoneyMorning 23-01-2019

Source: See It Market

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But instead of building roads and ports to increase exports, China should be doing more to transition as many people as possible into the service sector.

Why? Because service businesses are generally immune to global macro shocks. They also grow from internal-led demand.

With an economy led by services, China need only depend upon themselves. Remove the communist party and you’ve got yourself an economy ready to overtake the US in no time.

But it needs to start with services, not necessarily technology.

Your friend,

Harje Ronngard,
Editor, Money Morning

PS: China’s New Boom: How three Aussie investments could be set to soar into 2018 and beyond, thanks to these international trendsetters. Get your free report.

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