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China looms large in the northern economy

August 11, 2014

China, as the second largest world economy and one of the fastest growing, looms large over the northern economy.

American scholar Stephen Roach in his book “Unbalanced: The codependency of America and China” describes at a high level what has happened in the past three decades between the world’s two predominant powers.

America, the market oriented super-power with a political system that resists making hard choices, leads to a situation where the US Fed pursues a series of easy money policies allowing budget imbalances to be ignored year after year. China, the centrally planned rising power that force shifts its savings pool into exports and export oriented industry. The result is a symbiotic relationship-America the consumer; China the producer. Yet things cannot continue much longer. The US economy is suffering from a dearth of real jobs—real incomes are falling. China needs to reduce its dependence on exports and boost the services sector of its economy. Chinese consumers need to spend more and to save less. US consumers need to save more.

Private consumption makes up only 35% of the Chinese economy—one half the percentage of the US. At around 47% of GDP, China’s embryonic services sector remains well short of the 60-65% share that a middle-income economy typically possesses.

The impact of China on the economy ‘north of 56’ can be seen in a few areas:

The trend that is apparent is that China is urbanizing. The Chinese consumer is gaining in affluence. The demand for energy and metals continues to grow.


China is an important source of investment capital and markets for northern commodities. It is still a society with a per capita income of 1/8th of the US or Canada. It is urbanizing and growing, opening up opportunities for northern economic development.