China Could Become World’s Largest Economy

Jupiter, FL (PRWEB) February 2, 2008

In the latest issue of Money and Markets, Larry Edelson takes a closer look at how China could become the world’s largest economy and why. Mr. Edelson examines China’s growth potential and all the reasons why it will continue to grow at a steady pace.

China’s fourth-quarter 2007 gross domestic product rose an amazingly robust 11.2%. That’s down a tad from third-quarter growth of 11.5%, but China is still at the top of the heap as the fastest-growing major economy on the planet. That growth is almost sure to continue because of urban migration and the development of western China. Beijing recently enacted a new series of plans that include $ 700 billion in spending. China has the world’s best economic growth record, posting 9.7% annual expansion over the past 26 years. At that rate, China’s now $ 3.4 trillion economy will double to $ 6.8 trillion in 7.5 years and quadruple to $ 13.6 trillion in 15 years. In other words, China could become the world’s largest economy by 2022, if not sooner.

What’s more, with fluctuations of less than one full percentage point over the last five years, China’s high economic growth rate has been more stable than that of any other emerging economy in the world, and unrivaled historically. Meanwhile, Beijing’s fiscal revenues are soaring. According to the National Statistics Bureau, the government’s fiscal revenue hit $ 691 billion last year, up from $ 261 billion in 2002. Beijing has tons of cash it can use to keep economic growth humming along. That kind of money gives Beijing the ability to increase public spending at will. And that’s just tax revenues. China’s mountain of foreign reserves has climbed to an astounding $ 1.53 trillion and is growing at a rate of more than $ 1 billion per day.

Add it all up and China has almost $ 2.3 trillion stashed in the bank. Plus more than $ 3 billion a day of positive cash flow. In contrast, the U.S. has negative cash flow of more than $ 2.7 billion per day. No wonder 51 million jobs have been created in China in the last five years. And as a result, China is experiencing rapid income growth for both urban and rural residents.

The rise from extreme poverty is nothing short of spectacular. Twenty-five years ago, more than 600 million Chinese were living on $ 1 a day or less. Today, the number of Chinese living in extreme poverty is less than 180 million.

One consequence: China’s retail sales are exploding through the roof. Retail sales growth in China has jumped from 9.1% year-over-year growth in 2003 to 16.8% growth in 2007. And all signs point to continued retail spending growth as Beijing embarks upon a five-year plan to increase domestic consumption even more.

Contrary to what most people think, the U.S. accounts for only about 16% of China’s exports. That’s down from 25% in 2001. Singapore, Hong Kong and Malaysia are far more exposed to a U.S. slowdown than China with their exports to the U.S. running at more than 20% of their respective GDPs. Moreover, China’s explosive growth over the last five years occurred even as export growth shrunk. Export growth in China has contracted from 34.6% annual growth in 2003 to 25.7% last year. In other words, even as China’s export growth slows, its economy booms ahead.

“Meanwhile, China’s banking system is now one of the strongest in the world with 15% of their deposits held as reserves at the People’s Bank of China, the country’s central bank. China’s banks are now among the world’s strongest and the country should keep racing ahead. Contrast that with U.S. banks, which hold on average about 8% of their capital including stock and earnings, as reserve capital to meet so-called Tier 1 requirements for bank safety. That’s less than half of what China’s banks hold,” Mr. Edelson states.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspx?Despite-US-Recession-Chinese-Stocks-Look-Attractive

About Larry Edelson and Money and Markets

With nearly three decades of experience in precious metals and natural resources markets, Larry Edelson has played a pivotal role in training Weiss Research staff and in guiding Weiss Research’s customers to prudent investments in the sector. His Real Wealth Report, Gold Trader Hotline and Energy Options Alert provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management. His team of technical analysts helps enhance the timing of investment recommendations with the aim of continually improving the performance results for investors.

Mr. Edelson is also a regular contributor to the daily e-letter, Money and Markets. Recognized as an expert in precious metals and natural resources, he is often called upon by the media for his investing views. Mr. Edelson has been featured on Bloomberg, Reuters, and CNBC as well as The New York Times, New York Sun, and Marketwatch.com. Mr. Edelson holds a B.A. degree from Columbia University.

Money and Markets (http://www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit http://www.moneyandmarkets.com.

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