6: Follow the Yellow Silk Road

THIS WAS OUR 2018 TREND FORECAST: “Follow The Yellow Silk Road.” The trend lines make it clear: China, already the world’s number two economy and the world’s largest trading nation, will continue to expand its presence on the global economic stage in 2018. 

MID-YEAR UPDATE: The 20th century was America’s century. As trends are developing, the 21st century will be China’s.

The forecast is in the numbers. The priority of “Democratic America” is to spend trillions building its worldwide Military Industrial Complex, while the “Communist Chinese” government spends trillions on building and expanding its global economic strength.

For example, the U.S. just increased its military defense budget by $82 billion, bringing Defense Department spending to $716 billion. Taken into account the $165 billion in increases in the U.S. military spending between 2017 and 2019, just those increases alone are larger than the entire defense budget of China.

Moreover, when funding for U.S. intelligence agencies, Homeland Security and militarizing local police departments are included, America’s total defense spending exceeds $1 trillion.

Thus, while U.S. ramps up its war machine, China keeps revving up its money machine.

On the fast track to becoming the master of economic globalization, “Communist” China, now the world leader in manufacturing supercomputers, continues to invest its yuan to bolster its high-tech sector, dominating A-I, accelerating Internet development, advancing manufacturing and innovation enterprises and expanding its acquisitions of foreign ports, industries and airports

Again, the facts are in the numbers: The business of America is war, the business of China is business.


On China’s economic indicators front, its growth pace has slowed, as evidenced by a series of down-trending second quarter economic indicators, prompting China’s Central Bank not to raise its key rates, even though the US Federal Reserve raised its rates.

Historically, the People’s Bank of China has attempted to adjust its rates in sync with the US, to keep pressure off the yuan and deter capital outflows.

However, with its economy slowing, and following the Central Bank’s reduction of the amount of cash it requires banks to hold in reserve, Beijing freed up more than $100 billion for Chinese banks to boost lending, dropping the yuan to its weakest level against the dollar this year.


As data shows, China’s fixed asset investment rate dropped to 6.1 percent in May, down from 7 percent in April, and below market forecasts. That’s the slowest rate of expansion since the National Bureau of Statistics started the series in 1996.

In addition, industrial production slowed to a 22-year low, growing by 6.8 percent over the year to May, while retail sales fell from 10 percent in April to May’s 8.5 percent, the slowest pace in 15 years.

And, the Shanghai Composite sunk into bear market territory in June, down over 20 percent from its 52-week high. And the smaller Shenzen composite market moved into bear territory in February.

When we made our “Follow The Yellow Silk Road” trend forecast for 2018, we noted that while China’s growth was slowing from its 6.9 percent high in 2017, the International Monetary Fund (IMF) was still forecasting 2018 GDP growth at 6.6 percent, softening only modestly to 5.5 percent in 2023.

We concluded that should China’s annual Gross Domestic Product continue growing at a rate of 6.5 percent to 6.9 percent, while the US slogs along at around 2.5 percent to 3 percent, China’s GDP will overtake the US level by about 2026. 

In fact, China’s efforts to slow the country’s fast-rising debt, and its efforts to impede the flow of easy money were reflected in the May data.

The country’s crackdown on credit in recent months hit small and mid-size businesses hard, representing about 60 percent of the country’s business sector. But now, with The People’s Bank of China shifting its policy to make access to funds easier for small businesses, it is clear that China is pursuing monetary easing.

However, that path may be difficult to take, should the dollar continue to gain strength against the yuan. Falling to a 10-month low in June, the yuan suffered its largest ever monthly decline against the dollar since China established a foreign exchange market in 1994.

Should the latest Central Bank easy money measures ease the downward pressure on the economy, growth this year is expected to be 6.5 percent.


China’s much ballyhooed tariff fight with the United States, as with softening economic data, are, we forecast, only twists along China’s Yellow Silk Road path to economic dominance.

On the trade wars front, despite the attention these tit-for-tat threats between China and the U.S. get in the mainstream business media, and the momentary impacts on stock market performance, our position is firm: We do not forecast damaging trade wars.

China has a $375 billion merchandise trade surplus with the United States. It will negotiate rather than kill off its lucrative export money stream. Moreover, the economic impact of those tariffs on China is modest.

Should, for example, the U.S. impose $34 billion in tariffs on Chinese goods as President Trump has threatened, that would shave a measly 0.1 percent off China’s growth in the first year. Again, not a loss of income great enough to declare a trade war.

While their economy is slowing, their currency weakening, and with China’s debt as a share of Gross Domestic Product around 250 percent, there will be detours and road blocks along the Yellow Silk Road. But we maintain our forecast: the 21st century will be the Chinese century.

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