It’s not often I make forecasts on what will happen in China, usually they leave you with egg on your face. However, this time I’m going to venture that China is going to face a big post Olympics hangover. Below are my thoughts.
There will be big rise in Inflation due to the governments efforts to artificially keep inflation in check before the Olympics will be removed. As a consequence interests rates will have to rise to keep inflation in check.
Even long before the Olympics there has been a housing boom in Beijing and other cities. After the Olympics thousands of hotel rooms are going to converted into flats adding to an already saturated market.
The Stock Market
All ready more than 50% down on its peak, it will continue to fall as inflation rises and global growth slows down. Many small investors are being seriously burned.
Jobs and Output
China’s industrial model based on low wages appears to be stalling. In the industrial heartland of Guangdong factories are having to deal with a number of increasing problems that are cutting profit margins and seeing record factory closures.
Some of those factors are:
- Falling global demand
- Higher wage costs
- Difficulty in recruiting new labour from the provinces
- New environmental and labour laws
- Dislocation by foreign and Chinese companies to countries with lower costs.