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10 reasons to believe in China slowdown story

10 reasons to believe in China slowdown story

by Ruchir Sharma (head of Emerging Market Equities and Global Macro at Morgan Stanley Investment Management)

 

Anyone forecasting a hard landing for China's boom is typically met with the same scepticism that doomed the boy who cried wolf. However, the lesson from the fable is that the wolf did eventually come. Now after some false alarms, it seems a major slowdown in China is at the door.

The news out of China is flashing red with signs of weakness, from slackening factory output to sagging export growth. These are not cyclical blips: they foretell a fundamental downshift from the boom of the last three decades, when growth averaged 10%. Here are the top 10 reasons to believe China has hit a major turning point.

Too rich to grow at a miracle pace: China last year passed the $5,000 per-capita-income level, the same level (in inflation-adjusted terms) at which all miracle economies - Japan, South Korea and Taiwan - slowed, generally by about four percentage points.

As supply dries up, factory labour is no longer cheap: Wage inflation - the same symptom that signalled a slowdown in the other Asian miracle economies - is now running at a 15% annual pace, and labour has the upper hand in negotiations. One Chinese manager recently complained to my team that he used to be able to yell at his workers - now they can yell at him.

 

From http://economictimes.indiatimes.com/opinion/comments-analysis/10-reasons-to-believe-in-china-slowdown-story/articleshow/14753357.cms

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