China’s 3rd quarter economic growth slowed more than expected and is on its weakest pace in almost 3 decades primarily due to the US tariffs. In an article by Kevin Yao and Gabriel Crossley of Reuters, the Gross domestic product or GDP rose 6%.
If you consider President Trump says the American economy is doing the best in years it is growing at 4%, China’s 6% is higher.
One of the reasons for the slowdown in China, because of the tariffs companies have shifted operations from China to another country such as Vietnam. If you shop in a grocery store, the produce bags you put your broccoli into used to come from China, now they are coming from Vietnam. This is good news for Vietnam, bad news for China and the US. The purpose of putting tariffs on is to shift production from one country and bring it to the country imposing the tariffs in this case the US. If the companies just shift production from one country to another, it helps neither the former host country or the country imposing tariffs. Will the President now impose tariffs on Vietnam and other countries which manufacturing has been going to?
For China 6% growth rate is still a healthy growth rate and was no the lower end of expectations. In order to increase the growth rate, China will invest more money in infrastructure. China unlike the US still has a healthy share of its GDP from manufacturing in the US it is 11%; while the US depends on consumer spending to drive the economy.
In China, the government has relied on a combination of fiscal stimulus and monetary easing to weather the slowdown including tax cuts and local government bonds to fund infrastructure projects and efforts to spur bank lending.
Linking to dividend paying stocks, countries have set tools to deploy to continue growth, for a non democratic country similar to China, it is easier to do infrastructure projects, the government picks the projects and any objections are overruled and the projects go ahead (there are pictures on the internet where someone owns a house and tried to defy the government, so the government built the highway around them) In democratic countries the politicians talk about infrastructure but at the moment have not passed the bills to do the infrastructure. After the money is passed, the people have a say in what is good and not so good and just before the election something is announced. Efficiency is not always a great thing, but democracy can work.
There are more questions than answers, till the next time – to raising questions.