The Markets

The People’s Republic of China (PRC) appears to have taken the words of American industrialist Henry Ford to heart. Ford said, “There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.”

Last week, we learned from CNBC China’s annual trade was more than $4 trillion in 2013. That pushed the PRC ahead of the United States and gave it standing as the world’s biggest trader. According to The New York Times, China’s annual trade surplus, in U.S. dollar terms, was the largest since 2008 and 12.8 percent ahead of 2012’s surplus. In other words, China exported more than it imported. 

It’s interesting to note imports to China increased significantly. In fact, imports rose more than exports which reflects strong domestic demand, according to an expert quoted by CNBC. That demand may have been driven by rising wages and a growing middle class. The BBC wrote:

“For some, it is perhaps surprising that China didn’t already hold this position. However, there have been concerns in recent months over the accuracy of China’s export data. There has been speculation that some Chinese exporters may be overstating their shipments in an attempt to bypass restrictions on bringing funds into the country. For their part, Chinese policymakers have taken measures to counter the problem. In May last year, the State Administration of Foreign Exchange (SAFE), China foreign exchange regulator, said it would increase its scrutiny of export invoices and impose tougher penalties on firms providing false data. Some analysts have said that even if the issue of inflated numbers was taken into account, China would still take the top spot from the US.”

The Economist forecast China’s economy will overtake the United States’ in 2019 if economic growth averages 7.75 percent a year in China and 2.5 percent in America and inflation averages 4 percent and 1.5 percent, respectively, between 2010 and 2020. In late 2013, the Organisation for Economic Cooperation and Development forecast growth in China would accelerate to about 8.2 percent with 2.4 percent inflation during 2014, according to Reuters. Growth in the United States is estimated to be 2.8 to 3.2 percent with inflation of 1.4 to 1.6 percent for the year, according to the Federal Reserve.

 
 
 

Lexington Wealth Management