I love London cabbies. "The Knowledge" provides them with the training they need to provide London and its visitors with a courteous, efficient and well-priced taxi service and they are never short of an opinion. From 'footie' to the FTSE, a cabbie will always give you his two bob's worth. Unfortunately when it comes to finance, the "Wisdom of Crowds", the idea that the opinion of the collective will always be more correct than that of an individual, falls over. It is normally the case that once the cabbies start talking about an 'asset getting ready to fly', or 'a currency being set to collapse', the opposite becomes the truth.
This weekend's papers were full of talk about China and how quickly the Chinese economy will overcome that of the US, to become the largest in the world. Some think 20 years, some think 40 years, but all are agreed that it's going to happen at some point; a country of 1.2bn people, with 20% of the world's population, will eventually become the largest economy in the world too. In the meantime, however, the path to this growth doesn't resemble the expressways of Shanghai and Chongqing but more the earthen tracks of the Tibetan border.
China's year-on-year growth is still at levels that most Western economies would kill for. But it is slowing all the same. The government in Beijing has in recent weeks told the world that they expect growth to average 7.5% in 2012, down from a previous of 8%, and that the double-digit-development of the past is gone. China has relied hugely on low-cost manufacturing to provide growth, attracting the ire and some tariffs from the developed world, and now it must change its economy to one that is more consumer led.
This "rebalancing" is good for all; apart from those betting on growth remaining astronomic in the short-term. The powers that be have promised change for years and haven't come through on the promises yet; whoever wins the upcoming Presidential election in the US will still have to deal with a country long on obfuscation and short on reforms.
Unfortunately, while the uber-wealthy Chinese will remain happy to import the Ferraris, Mouton-Rothschilds and Louis Vuitton trinkets to satisfy their desire to 'flash the cash', actually changing the mind-set of the middle classes away from one of a savings led economy to one based on consumption will take years and years.
A prime example of this can be seen across the East China Sea; in Japan. Japan has been through two "Lost Decades" of pitiful growth, and while the frugality of the typical Japanese worker did not cause the crisis, the situation was perpetuated by the desire of 'Mrs Watanabe' to hold the purse strings tighter.
China has a lot more room to manoeuvre to fend off a painful slip in growth in the short-term, but concerns will remain as to the speed of the rebalancing and how ready the Chinese people are to adopt the consumer culture that is required to maintain its inexorable growth. China may well become the world's largest economy in 5 years' time, it could be 25 years, there's no way of telling for sure... Either way, I'm sure a cabbie will let you know when it's about to happen.
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