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Where Does Hot Money Go Next?


A look at recent changes in China's economy and the Chinese middle class.

MINYANVILLE ORIGINAL China's economy faces many challenges going forward. The slowing world economy has dampened demand for Chinese exports. According to the New York Times, signs that the Chinese economy is sputtering continue to mount in the form of dismal and feeble trade data, fanning expectations that Beijing will soon step up its efforts to buttress growth before a key leadership transition this autumn.

Compared to GDP growth in the US, Europe, and Japan, the Chinese growth rate, although declining, is enviable. China's economy fared better than many expected in 2011, and has emerged as a key driver of global growth. Despite the slowdown, it remains, according to the Carnegie Endowment's International Economic Bulletin, the world's best- performing large economy and the strongest economic engine.

Why then is the Shanghai Stock Exchange ($SSEC) posting such poor performance?

Click to enlarge

One key to understanding this picture is China's emerging middle class. According to a recent article in CNNMoney, the Chinese middle class comprises households with an annual income of between US $10,000 and $60,000. A rule of thumb is that a household with a third of its income for discretionary spending is considered middle class.

The CNNMoney article goes on to say this about the Chinese middle class:
Most middle class people in China have a college education and relatively stable jobs. There are a lot of entrepreneurs and a lot of white collar workers working for multinationals or state-owned companies.

They are a lot younger ... 20 to 50. A lot of them own homes. Like Westerners, they want everything Americans have.

This new middle class just emerged in the last 15 to 20 years. Fifteen years ago, people didn't have cars yet. But in the last seven, eight, or nine years ... everyone has a car. Some people have more than one car.
So the emerging middle class in China has been buying "the American Dream."
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