by Vikram Mansharamani, Yale University, via The Daily Beast
Over the past 18 months, the global fascination with Chinese economic invincibility has steadily waned. And economic sophisticates have reached a consensus: China’s growth rate is slowing. Western demand for exports is falling. And the economy is plagued by overinvestment and excess capacity in housing, steel, and a host of other sectors. Officially, China is growing at a 7.5 percent rate this year. But I guesstimate that China is downshifting. Over the next 10 years, it’s possible that China will grow at an annual rate between 3 and 5 percent.
The hidden story embedded in the Chinese economic “slowdown” is that investment-led growth is plunging. And the global implications are many: industrial commodities like coal and iron ore lose their China “bid”; mining companies find themselves expanding capacity in the face of slowing demand; commodity-reliant countries like Brazil find the China growth tailwind is turning into a headwind; currencies like the Australian dollar are exposed as extremely vulnerable; rail and port operators find that the volume of containers they handle is falling.
The financial press is doing a good job discussing these direct impacts of China’s growth slowdown. But there are plenty of other indirect, second-order impacts that have been ignored. For instance, the impact of the Chinese economic slowdown on art markets, something I’ve wrote about in this space, has been dramatic—with the share price of Sotheby’s falling by almost 50 percent over the past 18 months. Another possible casualty of the slowdown may be high-end real estate in Vancouver. Just as the marginal buyer driving art markets has become the über-wealthy Chinese, so too have Chinese buyers come to dominate the market for posh residences in Canada’s gateway to the Pacific.
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Vikram Mansharamani is a Lecturer at Yale University, a Tiger21 Scholar, and the author of Boombustology: Spotting Financial Bubbles Before They Burst. Follow him on twitter @mansharamani.
