Why China's Economy is Set to Grow Even Further

One of the lasting images of the growth of America in the 19th century is the railroad.

It criss-crossed the nation from east to west. It was an integral part of American growth.

Before the railroads, people and goods travelled with the speed of horsepower. One ‘horsepower’, if they were on horseback. It was perhaps up to four or six ‘horsepower’ if by carriage or wagon.

But with the rollout of the railroad and ‘iron horses’, people could travel with the speed equivalent to thousands of horsepower. The railroad revolutionised the movement of people and goods. It revolutionised the American economy.

And now it’s all happening again. This time, in China’s economy

Even though China is moving towards a consumer economy, there’s no doubt that at the moment, it’s still an infrastructure economy.

As the Financial Times reports — get this for a blow-your-mind number:

‘Standard & Poor’s estimates that $320bn–$400bn will need to be spent to meet the government’s goals of completing 6,000km of subway in 38 cities by 2020.’

According to our emerging markets analyst Ken Wangdong, China has over 100 cities with populations over 1 million. That includes ‘megacities’ like Beijing, which is home to 21 million people.

The expansion of rail and subway networks is a big part of China’s policy. It’s one of the sectors Ken has his eye on for rapid growth over the next 5–10 years.

China wants to build the biggest and best rail networks.

That’s not surprising. There’s something about railways.

Aside from America, it was also a symbol of British manufacturing and industrial growth in the 19th century. Before the rollout of rail networks the most efficient form of transport for goods in Britain were the canal systems.

But again, for the most part, these operated using real horse power — one horse power. That wasn’t their only problem. In winter they could freeze over, and in summer water levels could drop so low no one could use them.

So once the rail networks arrived, the canal systems soon became obsolete, and the British economy went from strength to strength.

And just as the rail networks symbolised the growth of Britain and America, it will symbolise the growth of China too.

China has the right idea

Of course, it’s not only China but the rest of south-east Asia and other emerging markets.

One major economy is drifting into the background while another is storming to the foreground. The funny thing is, after just over 10 years of noticeable Chinese economic growth, most folks seem to think China’s age of dominance is over.

That’s why you see so much talk about China crashing. It’s why so many people focus on potential debt defaults. It’s as though it’s bad for companies to go bust. What would they prefer, multi-trillion dollar bailouts to prop up dying and inefficient businesses?

It seems they would.

We see things differently. We’re no fan of China’s communist system. But if the government sees fit to let local governments default on their debt and let big companies go bust, that’s just fine with us.

Perhaps other local governments and firms will think twice about going over-the-top with debt.

Let’s get something straight. Despite the scary talk about China’s economy and other developing markets, this is the start of a big economic change. It’s what we call the ‘Frontier Century’.

It’s not the end, it’s just the beginning

What do we mean by that?

By ‘Frontier Century’ we mean that the next huge shift in world economies is taking place now.

The last time a shift of this size took place was in the 1890s, when America took over from Britain as the world’s biggest economy.

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