Since Most Things Are Consolidating, Let's Talk China!

To trend traders, nothing is more painful than when things are in consolidation mode, which is what we have currently. Since there is nothing much to trade, I have decided to talk about China. China, as we all know, has successfully leaped from an agriculture-driven economy to one that is powered by exports, made possible due to cheap labor costs. The country alone has stolen the entire manufacturing base in the developed world and is currently the biggest exporter in the world (Germans will argue otherwise). However, I believe the export-driven growth model ended in 2008 when American consumers, hamstrung by debts, began to retrench and save. On the other hand, the massive stimulus implemented by the Chinese government has dramatically increased inflationary pressure, illustrated by rising food prices and wages. Slowing export demand and higher wages, coupled with excess capacity and strengthening Yuan will continue to adversely affect the sector, in my opinion. Government officials have noticed the problem and directed their focus to growing domestic consumption. However, while China recently surpassed Japan as the #2 economy in the world, its per-capita income ranked #127, lagging behind countries such as Albania and Algeria. As a result, I believe the re-balancing will happen very slowly and the economy remains very vulnerable to external shocks. History tells us that no country has risen to power without a major crisis, and therefore, I suspect "this time is different" for China...