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People are way too psyched about China, says Hugh Hendry.In a piece he wrote for the Telegraph, the hedge fund manager admits that China has been growing like crazy.
- China’s conomic growth has averaged 9% a year over the past 10 years, compared with 1.9% for the British economy.
- Last year, despite the credit crunch, China posted a remarkable growth rate of 10.7% compared with a British contraction of 3.2%
But here’s why China is not that great, according to Hendry:
- China, now the world’s biggest creditor, is also running persistent trade surpluses. That’s only happened twice before: with the US economy in the 1920s and with the Japanese economy in the 1980s.
- Unlike in most countries, China’s share of consumption within its economy has fallen relentlessly, reaching 35% of GDP in 2008.
- Foreign demand for its exports dropped. Now China relies on a massive surge in domestic bank lending to fuel its growth rate.
- China’s state planners have favoured investment over consumption. China’s investment spending has tripled since 2001. Domestic consumption never grows fast enough to absorb the supply, and Chinese profitability is already low.