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Monday, June 20, 2005

Now This Is The Point

A very readable article in Business Week on China's growing (over)-capacity problems:

"But what if China downshifts? Most economists foresee mainland growth slowing to a more sustainable 8.5% or so in the next couple of years. At the start of 2004, China appeared to be in real danger of overheating and contracting severely, which would have been a disaster, since the country needs to grow at least 7% annually to create enough jobs for new workers."

Get that, China needs a minimum of 7% growth just for the internal migration and demographics. The US, according to Krugman, needs a 3% minimum growth for the same reason (as I write this I have just realised that Spain isn't growing quickly enough at 2.7% when you consider the huge inward migration 1.5% of toatal population annually. This means that per capita incomes are rising as the % of people of working age is rising, but that *productivity* is falling, since the economy isn't growing as quickly as the labour force, and this is what the OECD and IMF studies show. That's an example of 'demographics' in action: quick, clean and efficient as a 'rule of thumb' analysis).

"We are entering a war of attrition, there will be continued overcapacity," says Automotive Resources President Michael J. Dunne "Whoever has the deepest pockets will survive this battle of wills."

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