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No Turning Back for China

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If you don’t yet think of China as a mighty force in the world’s economy, with powerful effects on the U. S. and its financial markets, you’d better start. This country of 1.3 billion people has a large middle class poised to make a great leap forward from 250 million to 500 million over the next decade. The typical middle class family of three–two parents and one child–eats dinner out twice a week at the local equivalent of, say, The Olive Garden.

China is “careening down a path toward a market economy,” says Donald Straszheim, chairman and CEO of Los Angeles and Beijing-based Straszheim Global Advisors, LLC. What is fueling this path? Part of it is the enormous migration from farms to urban areas in China. Of the 1.3 billion people in China, a half billion already live in urban areas. Of the 800 million Chinese living in rural areas of the country, 300 million are poor, subsistence farmers, but 500 million of them are migrating to cities. That migration, according to Straszheim, is a “source of strength in the economy,” for China. There is massive growth in U.S. trade with China, with for example Wal-Mart importing $20 billion worth of goods from China in 2004 alone. “If Wal-Mart was a country it would be China’s fifth-largest trading partner,” says Straszheim. But there is also considerable import to China. There are 49 Wal-Mart stores in China where brands like Coca-Cola are popular, and companies such as Procter & Gamble, Home Depot, HSBC and Yum Brands are making China a “growth focus for the next decade.”

China is making big investments in infrastructure and in doing this, according to Straszheim, “has become the largest producer and consumer of steel in the world.” With this and other imported basic materials China is building roads, airports, water and sewer systems. The country is the largest user of coal in the world, and imports vast quantities of oil and a growing amount of LNG. With all of this growth, and an average GDP of 9.3% from 1978-2004, versus an average GDP in the U.S of 3.1%, Straszheim says China’s economy is not overheated.

There are some negatives to all of this growth and industrialization in China: pollution is a major problem which the Chinese are starting to aggressively address, with new car emission standards that are tighter than California’s.


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