Submitted by: Scotty Hayes

For the many of us who do not have a job waiting for us upon graduation, unemployment is less than four months away. To me that is a very scary thought. I have held a job most of my life and when I don’t have steady employment something doesn’t sit right with me. I guess I attribute that to my hard working parents and grandparents who have continued to sacrifice and who have worked diligently to pave the way for future generations. The main reason I am in this program is to advance my career so I can succeed in today’s business world and to provide for my future family. Yes, sometimes school is overwhelming and life is tough, but there is no doubt that this is nowhere near as difficult as the times we will all be encountering in the very near future.

Jobs are created and destroyed by the state of the economy. The economy has been the number one thing on my mind for the last several months. I have been glued to the news channels and have been reading any article I can find related to the economy, through many different means. The other day I thought, I am making a huge mistake. I realized my search for information was not complete. All this time, I had not paid very much attention to what was going on in other parts of the world. So I decided to take a deeper look at another one of the most influential global economies and here is what I found (so far.)

I started my internet search with just a simple “Chinese Economy” in the search engine and the first site that peaked my interest was the investing section of MSN. In an article written in July of 2006, it was predicted that the Chinese economy was headed for a “train wreck” by 2009, by columnist Jim Jubak.
Click here

Mr. Jubak mentions cheap money as the major contributor. Interest rates were extremely low 5-6% with an after-inflation rate of 3-4%. All of this cheap money led to real estate booms especially in and around industrial cities with double digit growth and tremendous increases of prices. Sound familiar? Also, depositor rates were low ~2%, which gave companies no incentives to save cash. So this forced companies to reinvest in fixed assets that kept adding to capacity gluts in many industries. Capacity excess is detrimental to business, but more about that shortly. At this time the Chinese economy was becoming increasingly dependent on foreign investment and exports and less on internal consumption. So what happened?

Next stop was the World Bank. The World Bank has recently put out a quarterly update for China and the longest link I have ever seen is included below:
Click here

Take a look at the report that is in a PDF file in the upper right hand corner of this page. 

The World Bank recently cut its forecast of GDP growth from 7.5% to 6.5%, still very impressive by global standards. How come China has not been hit as hard as other countries? Well, their national savings rate is 51.2%. If you didn’t know, ours is negative. With this, their banking system does not rely on external financing. They also have a stimulus plan of 4 trillion Yuan or $586 billion in place that seems to be working. It includes tax cuts, infrastructure work, and social programs such as education and health care. What is also promising is the expanded enrollment in high quality and demand driven education and training programs (Their MBA programs included.)

However, as we all know there are still two China’s divided by wealth and the gap is continuing to widen. These educational programs just mentioned are expensive and very few can afford them, just like the basic education programs in China. With exports down ~25% major capacity excess is emerging, which ultimately contributes to unemployment and downward pricing and profits, which will likely turn to lower wages for the working class. One of the biggest problems I see is the fact that rural incomes continue to lag far behind urban incomes. There are many more factors to the equation, but these will definitely get your mind rolling. 

May you live in interesting times - an old Chinese proverb that rings true today.     

How do you see the future of the Chinese economy? How does it correlate with ours? What opportunities does it present? Business is built upon creating value. How can we learn from the Chinese and how can they learn from us?