China’s economic growth likely will slow significantly in coming years, but the country will generate enormous demand for food, with implications for global markets and U.S. agriculture. During the recent Academy of Veterinary Consultants conference in Denver, market analyst Andrew Gottschalk, who owns HedgersEdge.com, outlined key international trends in a presentation titled “New world order: Facts, myths and lies.”
One myth Gottschalk dispelled is that the Chinese economy will overtake that of the United States by 2016. Already, 3 percent of Americans believe the Chinese economy is bigger than ours. In fact he says, the combined economies of the high-growth “BRIC” countries (Brazil, Russia, India and China) come close to that of the United States but still fall short.
He also says China’s growth will slow as the government shifts its focus toward a market-driven economy rather than one fueled by government spending. The Chinese government has been engaged in massive, unsustainable infrastructure investments focused on increasing exports. In China, consumer spending accounts for just 34 percent of GDP, compared with 67 percent in the United States. Nominal GDP per capita in China is about $6,000 compared with $50,000 in the United States.
China has moved vast numbers of people from rural areas into its cities to work in manufacturing, and built vast residential developments to house them. That development comes at cost, and China’s ratio of bank credit versus GDP is 200 percent compared with 62 percent in the United States. Gottschalk adds that China is seeing diminishing returns from its infrastructure investments, with each dollar of new credit creating $0.15 in GDP gain, compared with $0.85 four years ago.
Over the next few years, he says, China’s GDP growth will slow to about 5 to 7 percent, from the double-digit growth in recent years.
On the international market, Australia and Brazil, which are China’s largest suppliers of industrial commodities, will suffer most from slower growth in China.
Gottschalk also addressed the issue of U.S. dept to China, saying Chinese loans account for about 8.4 percent of our national debt, with 65 percent in U.S. hands.
In the United States meanwhile, the leading economic indicators have been up for the past 12 months, and household net worth has returned to pre-recession levels. U.S energy production as a share of consumption has increased since 2005, currently reaching 83 percent, and we could be energy independent by 2015.
With the United States purchasing less energy on the international market, prices decline, which benefits the global economy. In the United States, Gottschalk says, a one-cent decline in the price of a gallon of gas puts $1.3 billion back in the pockets of consumers over one year.
Globally, Gottschalk says, demand for industrial commodities will shrink but demand for food will grow in coming years, as incomes increase in developing countries and consumers move from farms and villages into cities.
“The future of U.S. agriculture lies beyond our borders,” he says. “The greatest opportunity for U.S. agriculture is to continue to seek quality improvements and expand exports of meat. Quality sells.”