How to Navigate the Risks Presented by China :Introduction
For decades, China was a closed communist country. Her people were not well-educated and most Western countries were not allowed to operate in the country. After promising to reform its economy, China was allowed to join the World Trade Organization in 2001. Since then, the country’s economy has become the most important in the world.
Many global companies have moved to China. They have invested heavily in the economy, attracted by the low wages in the country where most people make less than $200 a month. More Chinese went to western universities such as Harvard and got the same quality education as Western people.
As a result, the country’s middle class expanded and the country’s GDP continued to expand by more than 7% annually. This was far much better than the Western countries. The country continued to dominate the emerging markets by borrowing heavily to invest in the emerging markets. These countries welcomed Chinese investments because China did not ask a lot of questions about things like human rights.
As the Chinese economy grew, it became the biggest consumer of commodities. It also became the biggest manufacturer. As a result, the price of products came down but manufacturing industries in other countries dropped as suppliers moved to buy products from China.
Against this backdrop, a small group of investors have been raising the red flags of the Chinese economy. They believe that the economy is not growing as the leaders have said. They also believe that the country poses the biggest risk to investors.
A good example of all this is in Mongolia, where the country has built a big city. The city was built with the intention of modernizing the economy and increasing the rate of urbanization. As more people move to cities, it increases the demand for products such as agricultural. The city was built in former agricultural lands to house more than a million people. Today, the city has less than 100K people. A recent report showed that the Chinese economy has more than 100 cities that have been abandoned.
Part of the reason why the Chinese economy has expanded as much as it has is because of the country’s investments in infrastructure. As the country has built more cities and malls, the result is that the demand for steel, cement, and other building materials increased. In addition, more people were employed to build the cities. As the construction slows down, the implication is that the economy could slow.
Therefore, there is a highly likelihood that the Chinese economy presents the highest risk to the global financial system. Signs of a Chinese economic collapse would likely send shockwaves to the global markets. If this happens, investors will be at great risk because most of their investments will fail. On the other hand, for traders, they will be at peace because they make most of their money by going long or short the financial assets. They go short trades they believe will go down and long assets that are predicted to go high. In addition, for them, it is okay to change mind and exit positions, unlike long-term investors.