View Full Version : Decoupling -- Yes?
Another viewpoint on decoupling from Mike Burnick of the Sovereign Society:
Asian stocks have been plunging the past few months, right along with the U.S. and most other markets around the world. But he says that what happens with short-term investment returns, where manic-depressive investor sentiment always rules over fundamentals, is not necessarily a sign the decoupling does not exist.
He claims there is growing evidence that shows economic decoupling is in fact taking place.
For example, data on U.S. personal consumption expenditures shows a peak in 2004, and since then yearly growth in consumption spending has declined by one-third. Meanwhile, emerging market capital spending has surged to new highs over this same period. Emerging market exports are also rising, growing about 12% annually last year, and since 2000 emerging market exports have been growing twice as fast as exports from developed countries: 10.8% a year compared to just 5.1%.
The explanation for the booming emerging market industrial production and exports is due, he says, to increased trade between emerging markets that's taking up the slack for slowing U.S. demand, and this dynamic should only get stronger going forward.
Raja,
Are there any actual numbers behind these percentage figures?
Having a $0.5T economy grow 10% while a $13T economy grows 5% does not mean the smaller economy is catching up.
Raja,
Are there any actual numbers behind these percentage figures?
Having a $0.5T economy grow 10% while a $13T economy grows 5% does not mean the smaller economy is catching up.
Sorry . . . that's all he provided.
I would have quoted it directly, but I thought there might be some copyright infringement.
If I understand you correctly, regards your second comment I don't think his point was the the Chinese economy is catching up to the U.S., but rather that the Chinese economy is growing less dependent on the American consumer, i.e., decoupling.
Actually, my point was that if the average US per capita is $43000, and the average China per capita is $1500, China having a growth rate double that of the US still means both disposible income spending power and absolute income will not become equivalent for many many many years.
How many years of saving would be needed by the average Chinese per capita to buy an HDTV?
How will that demand be replaced by 'internal consumption'?
Similar scenarios exist for other areas such as home construction/construction materials.
That's why I always want to see the actual numbers whenever someone starts spouting 'decoupling'.
Actually, my point was that if the average US per capita is $43000, and the average China per capita is $1500, China having a growth rate double that of the US still means both disposible income spending power and absolute income will not become equivalent for many many many years.
How many years of saving would be needed by the average Chinese per capita to buy an HDTV?
How will that demand be replaced by 'internal consumption'?
Similar scenarios exist for other areas such as home construction/construction materials.
That's why I always want to see the actual numbers whenever someone starts spouting 'decoupling'.
With a population of 1.3 billion, I think the issue is not what the average Chinese can afford, but rather, how many Chinese have increased their standard of living so that they can afford a HDTV. I don't have any figures, but my guess is that this number is large and growing . . . .
Given that the US population is roughly 1/4 of China's, and the relative income differential is over 25 to 1 in favor of the US, I'm still not sure how "this number is large and growing . . . ." will be meaningful when we're talking about the possibility of China replacing external US demand with internal demand.
Or put another way:
If the top 1% of China (13M Chinese) averaged $45000/year in income - equal to the US - then the total income would be $585B.
Or in other words, the remaining 1.287B Chinese would make only a tad over $1000.
In this scenario, somehow 13M Chinese will make up for 300M Americans not spending?
China's average income must increase to $7000 or more before any type of possible 'internal demand' could possibly replace even a small part of US consumption.
In this scenario, somehow 13M Chinese will make up for 300M Americans not spending?
China's average income must increase to $7000 or more before any type of possible 'internal demand' could possibly replace even a small part of US consumption.
I don't want to defend Burnick's assertions, I'm just reporting them. What you say makes sense, but perhaps if he were participating in this thread, he might offer some counter argument.
I will say that he is referring to "emerging markets", not just China . . . and I don't think he's saying that complete decoupling has occurred, but that it is underway.
I don't want to defend Burnick's assertions, I'm just reporting them. What you say makes sense, but perhaps if he were participating in this thread, he might offer some counter argument.
Sorry to seem like I'm going after you - that is not my intention.
It is my intention, however, to thoroughly stress all arguments speaking to populist economic memes such as decoupling.
The little thought experiment I previously posted applies to all of the other nations; it makes those who talk about decoupling seem like talking heads to me.
A similar analysis applied to include India, Brazil, and a half dozen other countries winds up yielding less than 70M American equivalent incomes.
Of course, in reality a significant proportion of this number are already spending - so decoupling also assumes that these people will spend beyond their existing spending to replace American demand.
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