Don't bet it all on China

Article first appeared in FDM.

0706FDMchina_opt.jpgWhat’s next for China? Best case, worse case and status quo scenarios are almost equally plausible. Here are eight questions about China’s future.
1. Is China’s growth sustainable?

When China embarked on its economic liberalization, it was, effectively, a Third World country and a recipient of aid from the World Food Program. Starting from such humble beginnings, it’s easy to make great strides in economic growth. But as the country becomes richer, those numbers are harder and harder to achieve.

Is China’s growth likely to level off? Probably. Will it hurt business? Probably not. Will China crash hard, as Russia did in 1998, when its banking system collapsed and it had to default on its obligations? Definitely not.

The difference between China now and Russia then is that China is economically strong. It doesn’t owe money. In fact, the strength of its currency reserves is causing some problems for other countries. Its currency is so strong that it is only keeping down the exchange rate through keeping a firm hand on the amounts of money that can be exchanged. Russia, by comparison, was victim to spiraling inflation and a faltering economy.

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