Back in 2009 I wrote a blog warning of the dangers of investing in China referring to it as the new Russia of the late 1990’s. Since then there have undoubtedly been improvements in the opportunities to invest in China…but…the big question is, should we?
As we entered a global recession there were parts of the world that still continued to grow - China being one of them. The reason? Under orders from the government, China's banks flooded the economy with credit in 2010, but much of that money has gone into speculation, and the China market looks set to produce a bubble in the near future.
Wage hikes in China set off a chain reaction throughout the region and China’s human rights record, although improving, as we know is still not great.
Here’s the question - as the G8 nations write off debt and interest payments to African nations ill-equipped to deal with them both politically and economically, are we prepared to stand by and watch China lend even more to these nations, so that they can develop a stranglehold on their resources in the future?
Africa, a group of nations exploited by the West for so many years, now looks like a very interesting location on the investment map, and we see China playing both the short and the long term games here, a trend to be both admired and feared!
But…what if China has a hard landing? Over the past ten years, the growth of the Chinese economy has undoubtedly empowered economies in both the developing and developed world as they have bought their way into manufacturing, production, and service delivery.
With a hard landing these and many more investments would stop dramatically - or at least be left for another day. The impact on western economies would be felt as the balance of trade drops off and demand for western goods manufactured in China declines.
The result?
If we don’t consider the impact of China on the world stage then we are likely to see the western world slow further, and struggle to shake off the malaise that has embraced it over the past four years.
When trying to predict the future there are always more questions than answers. China looks like a great bet at the moment, but when the bubble bursts - and it will - the impact will be felt by the world. What do you think?