First with Financial Comment from Arabia

$1,200 per capita GDP leaves China among poorest nations

with 3 comments

How about that for an alternative introduction to the latest soaring GDP figures from China?

OK so GDP is up 10.7 per cent in Q4 compared with a year ago, but what does that actually mean in one of the world’s poorest nations? It means a per capital GDP of $1,200 or that everybody in China now has a little more than $100 a year extra to spend.

Global saviors

And this is supposed to be the rush of GDP growth to save the world. Have we lost our minds? Of course, population numbers do count but they do not make high-end consumers. Most of these poor folk struggle to eat a decent meal each day.

It is true that the Chinese currency is undervalued by perhaps 50 per cent, so $1,200 actually buys $2,400 worth of goods and services in China. So there was a big rush to by fridges for the first time thanks to the $586 billion stimulus package last year.

And more cars were sold in China than in the USA, obviously on credit at perilous salary multiples. Apartments are now selling for multiples of annual salary that defy any logic.

Sixty-two per cent of investors and analysts in a Bloomberg survey said that China is already a bubble with unsustainable stock market and housing prices. This is very typical of emerging market economies.

Market forces

The United States showed similar manic booms and busts in the 19th century, with the last really big crash in 1929. China will find that what has gone spectacularly up will also go down, and judging from the jitters in financial markets this may not take long to happen now.

In all bubble periods reality becomes somehow totally lost in an illusion that investors wish to be true. We saw it in Dubai in the recent real estate boom. Nobody can pump up an economy with 30 per cent money supply inflation without a crash, and that is what happened in China last year.

So instead of seeing the Q4 GDP data as some kind of virility symbol this should be taken as a big red flag, appropriately enough for the People’s Republic of China. The shorts have it right!


Written by Peter Cooper

January 21, 2010 at 1:45 pm

3 Responses

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  1. 1st link was an error. This is the proper link.


    January 24, 2010 at 9:02 pm

  2. Here is a good link on a pretty good article. One needs to remember that they have plenty of cash on hand.


    January 24, 2010 at 9:01 pm

  3. Something important to remember is that most people in China do not have credit cards. Those that spend usually spend with cash. Most if not all the mainlanders shopping in Hong-Kong for luxury items or in China usually pay in cash.

    What is true is that there is a huge amount of people that are poor in China. While last there a few weeks ago I ran into several poor people on the street begging me for money. On the other side of the poor and beggars is that you will find that most expensive and average priced restaurants are packed full and shopping malls are packed with shoppers. Sort of reminds me of what one sees in India.

    I remember speaking with a taxi driver that told me he makes about 2000-3000 RMB and if he is lucky he will make 4000 per month as a taxi driver. 3000 RMB is about $440 USD and he said he supports his wife and daughter. I asked him if he lived comfortably and he said he lives fine but can not afford to buy luxury items. China is cheap and locals can have lunch for $1. The average income in Syria is probably not any better then it is in China but yet life in Damascus looks fine.

    As long as everyone on earth continues to consume China will continue to grow. In China you will see people from all over the world there looking to buy products to send back home to sell and as long as those buyers keep coming in China will continue to grow. A lot of local have made good money these days (poor people aside).

    In Hong-Kong the bigger spenders come from the mainland and not from the US or Middle-East. In Macau the bigger gamblers come from the mainland and not from the US or middle-east.

    Imagine a population of 1.4 Billion with 75% poor and 25% with money. That would be like having a population like the US. Imagine everyone in the US with money or a population of 300 Million people with money.

    I think the local stock market in China and Hong-Kong will pull back only due to new shorting laws but growth in China will continue to do well for the time being.

    Chinese New Years is also around the corner and people need to take money back home so they will sell stocks to fill them red-envelopes for their family member and friends.


    January 21, 2010 at 2:57 pm

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