China’s growth may be slowing, but it’s for all the right reasons.
U.S stocks on Thursday kicked off the start of October with losses, after nosediving last month as investors worried about slowing growth in China. True, the growth rate of the world’s second largest economy has declined from over 10% in past years to about 6% this year, but that in and itself should not be a concern.
China now has a more mature workforce with higher wages, and can no longer compete for every export on price alone. Its government realizes this fact and is attempting to convert their economy from one of foreign exports to domestic consumption that concentrates on services. In many regards, China is achieving the goal with services contributing somewhere close to 50% of Chinese GDP now, versus less than 30% five years ago.
A largely unrelated fact is that the Chinese stock market has now round-tripped for 2015, having started the year with large gains and given those gains back. However, China’s market is still up 29% from this time last year. The drop in prices was certainly exacerbated by the 10 to 1 leverage for individual investors allowed by the Chinese government. Many of these investors have very little investing knowledge, less than even the Chinese government.
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This article was originally published on Fortune.com by Frank Beck and Bryan Anderson on 10/01/15