An interesting blog post by Tyler Cowen on China

I was reading through my usual morning of online econ articles and blog posts and I found a post that was very interesting to those who are interested in the recent Chinese economic slowdown. In this short blog post, we are given Professor Tyler Cowen's view on the current economic crisis facing China. He makes a couple of really interesting points here:

1. China's growth has primarily been driven by lots of investment in their future earnings and that model of growth has been shifted towards economic growth based on consumer spending. History usually tells that this has usually been the case. As opposed to Professor Cowen's opinions on China, I believe that the Chinese government is well positioned to shift investment growth into other avenues of growth, but faces many obstacles such as the Chinese consumer's reluctance to spend. This of course can be attenuated by clever marketing and aggressive monetary policies in order to spur a shift in economic growth.

2. As we all know, the change from investment growth to consumption growth is a tricky one and the Chinese government faces many challenges. If you look throughout history, no country has ever kept the high growth that they have maintained to do in the last 30-40 years, but I believe it's prime time for them to promote a top-down approach to increasing aggregate demand, which will probably shift aggregate supply accordingly.

3. In another related article by a Forbes columnist: Consumption is not primarily the driver of growth. There are other ways of growing the economy as China has mostly invested in expanding their infrastructure, but production is another side of things. Once China develops their internal consumption economy, production in China will greatly expand even beyond the current state. I believe that once foreign companies find Chinese workers too expensive to pay to manufacture their products for them, the Chinese government will pursue aggressive economic policy changes that will promote more products for domestic consumption. We all know the prowess of Chinese manufacturing hubs located mostly in Southern China. What if the average Chinese laborer now has money to spend on products?

In the final and last of the interesting observations Professor Cowen has made, I believe that it is too early to be pessimistic about future Chinese economic growth. Naysayers always point to Japan's economic collapse in the early 1990s, but China is a different animal. It is one of the largest countries in the world and it has yet to develop a fully strong consumer economy and a healthy financial system. Once that happens, predictions will be correct about China surpassing the US as the world's dominant economic powerhouse. We will sit and wait to see if that happens in the coming years.