China
September 22, 2007For many years The Peoples Republic of China (‘PRC’) has reported a GDP annual growth rate of 8% - 10%, creating an unprecedented demand and upward pressure on prices for basic commodities such as copper and crude oil. While there are many economic issues related to China that bear directly on the economic wellbeing of the U.S., perhaps none is as important as how a slowdown in U.S. Consumer spending would affect China’s GDP growth rate and its then behavior in respect of how it prospectively would deal in such circumstances both with the large amounts of U.S. dollars it holds and its continuing purchase of raw materials required to fuel its growth. This is because it is generally believed that the U.S. consumer spending is significantly important to on-going global (and given the U.S.’s apparent continually increasing dependence on economies external to its own) and U.S. economic growth, with the consequence that if the American Consumers reduce consumption the world (read China in particular) macro-economic engine may slow down significantly or reverse direction.
Whereas there is evidence of both increasing consumer spending in China, Chinese consumer savings, and a strong personal investment climate, we know of no statistic that points to the comparative importance of the U.S. consumer and the Chinese consumer to the continued growth of the Chinese economy at recent year levels. Certainly over time one would expect with a reported population of over four times that of the U.S. that the Chinese consumer will result in a circumstance where a serious downturn in U.S. consumer spending would not have a material effect on Chinese economic growth and hence on uranium and commodity metals demand in particular, but as best we know it is a big unknown as to what the effect on Chinese demand for these things would be currently. The question of how the PRC Government would deal with its extensive U.S. dollars holdings is a separate question, but one that needs serious consideration.
