How China Fooled the World

We all know that the statistics about China's growth are awe-inspiring: a new power station every week, a new skyscraper every five days, and 30 new airports and 26,000 miles of motorways have been built in China in the last five years. Chinese outbound tourists are set to spend over £310bn on their travels this year - and that alone is a huge injection into the economies of other countries. A report last month showed Chinese investment in London real estate has risen more than 1,500 percent since 2010, increasing from 54 million pounds to more than 1 billion pounds at the end of the third quarter of 2013. While Britain has been in the grip of the worst recession in a generation, China's economic miracle has surged forward. Without this extraordinary growth, the depth of the slump in the developed economies would have been even worse; China's low cost output and their foreign exchange reserves have helped to keep the global economy growing at a time when any stimulus has been most welcome.But, as Robert Peston explains in 'How China Fooled the World', the vast majority of this expansion has been built on credit from the 'shadow banking' system. There are huge developments of housing which have been built and bought up by investors at inflating prices, but which lie empty. As a result, the Chinese economy now has huge debts and there are doubts as to whether much of the money can ever be paid back. This sounds horribly reminscent of the bubble which built up immediately before the credit crunch in 2007-8 - but on an unimaginably bigger scale. What will happen to the rest of the global economy, if China is no longer there to support it?There is only another 7 days to watch this excellent programme on i-player, and it is really worth devoting an hour to at the end of half term - could be very useful for several of the bullet points for June's BUSS4, particularly the second - the risks and rewards involved in trading with or operating in China - and last - how business strategy might be affected by developments in China.Robert Peston's blog also has a supporting article. - which you can find here.