“Have I not commanded you?  Be stong and courageous.  Do not be afraid; do not be discouraged, for the Lord your God will be with you wherever you go.”

Johua 1:9

"A Tectonic Shift In China's Economy Has Largely Gone Unnoticed By Investors"

From Zero Hedge:

Back in August 2 we reported of a historic event for China's economy: for the first time in its modern history, China's current account balance for the first half of the year had turned into a deficit. And while the full year amount was likely set to revert back to a modest surplus, it was only a matter of time before one of the most unique features of China's economy - its chronic current account surplus - was gone for good.

Now it is the Wall Street's Journal's turn to bring attention to this topic, calling it a "tectonic shift" in China's economy, which has largely gone unnoticed by investors, and which is "quietly beginning to upend the global financial system."

A key driver behind China's declining current account is that after having long been the world’s heavyweight saver and a huge buyer of foreign assets like Treasurys, the world's most populous nation is now a big spender, and in early 2018, China got more of its growth from consumption than the U.S., the global king of consumer spending where some 70% of economic growth is due to consumer spending. And as China's increasingly wealthy population spends more at home and abroad, its total trade surplus with the rest of the world has shriveled to a fraction of its former size.

In other words, China is rapidly becoming the next US.

This transformation of China into a consumption-driven economy has enormous implications for global capital markets, and impacts everyone from retirees investing in U.S. Treasurys to fund managers investing in emerging markets like Indonesia or India. It could, the WSJ notes, also eventually help ease some of the frictions between the U.S. and China.

To be sure, China is still an export powerhouse - after all, it is China's massive trade surplus with the US that is arguably the reason for the ongoing trade war between the US and China. However, it is China's declining trade balance with the rest of the world that is of bigger concern in this context. As a reference, China's trade surplus has shrunk by a third in just three years: in 2015, the country exported around $150 billion worth of goods more than it imported each quarter. In the third quarter of 2018, the goods trade surplus was just $100 billion.

Naturally, a drop in Chinese capital flowing into U.S. government bonds raises many problematic issues, especially at a time when the US deficit is expected to hit $1 trillion as soon as this year and keep rising..

s the chart below shows, according to the IIF, China captured a whopping 75% of nonresident portfolio investment in emerging markets in 2018 and will absorb around 70% in 2019, up from just 28% in 2017. China's Americanization has had a staggering impact on recent capital flows..

The WSJ's conclusion: "U.S. investors this week were focused on the surprising news that Apple’s iPhone sales were falling short of expectations in China, and fretting about what that might augur for the months to come. But over time, what will matter more to global markets is the big rise in Chinese consumer demand, the big fall in Chinese savings and the big increase in China’s need for foreign capital."

https://www.zerohedge.com/news/2019-01-04/tectonic-shift-chinas-economy-has-largely-gone-unnoticed-investors

Best wishes for a Happy New Year