Barry Ritholz posted interesting charts on his blog with an even more interesting question.
If you want to know whether the China story is sustainable, consider this chart — then imagine what the US version of this looks like:
I imagine that the US version of the charts looks more or less like the mirror image of these charts. Mounting consumer spending vs. sinking consumer savings compared to the GDP.
That’s where China made all that money: US and other foreign consumers buying their stuff. Since US wages remained stagnant and no longer allowed for much consumption, it was bought on credit there were no savings.
The US consumer is no longer able to buy and China will have to look for other consumers who are willing to go deep into debt to support that economic model. This is unlikely to happen in Western Europe, Japan or anywhere else.
Sure, the Chinese themselves could step-in and start buying their own stuff with their savings. That is also not likely. Since China does not have a social safety net and those savings are for the rainy-days of the Chinese worker and they probably will be unwilling to go on shopping sprees. Also keep in mind that those savings are not evenly distributed among the population, so there is lots of potential for social unrest between the haves and the have-nots.
Even if we assumed for a moment that Chinese consumers would be willing to spend, they would buy stuff produced mainly in their own country and not produced abroad. This would lead to rising wages – or social unrest if not – in China. That would make the goods more expensive (sounds like inflation coming to China) and would lead to China outsourcing to other countries. That’s just another round of this game we just saw the results of.
It is possible that before we go through a new full cycle of this Ponzi-scheme, the natural resources would be running out. What will happen then, I’ll leave to your imagination.
Is the China story sustainable? No, the entire economic model is flawed and it will be torn apart by the tidal forces that have been unleashed.