Saturday, 21 November 2009

China doing the right thing

I've always thought it was strange when you see people say that this or that country's economy is "based on exports", as if that was just "the kind of thing they're in to", something fundamental, to do with their character. I think to myself... "hang on a second, that means that they make a load of stuff and give it to other people!". To me its just a temporary thing that a country can do for a while, building up I.O.U's from other countries to use on a rainy day. There is no way any country would or should do this indefinitely. In this crisis some people are looking at china saying "how sad, their 'export based' economy is going to be devastated because the West is not buying any more". I would say well that's rubbish. Its no problem at all. They just have to stop making stuff to give to foreigners and consume it themselves instead. Now one problem with this scenario is that if the Chinese are worried about the future they will been keen to save and reluctant to spend. But there is a cure - you see up until now China has not had much of a system of social security so the Chinese were very keen to save for their old age or if they lost their jobs. But now China is starting to build a "social safety net". This will have an enormous effect of the savings rates. After all why save so much for the future if the government will look after you if things go wrong. This is exactly the right thing to do. I can see China's economy marching ahead in the next decade or so even if America goes down the plug hole (which it might!).

Here's a nice video on the subject


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