China, Emerging Markets and the Recovery

Much has been written about the world economy, its major players and emerging markets. Speculators have been losing money and making fortunes based on the steps developed nations are taking to avoid another devastating blow to the world’s economic activity. Even after global recession, there is still no competitor to the USA in terms of economic volume and influence in today’s world. It has a 14 trillion dollar economy, which accounts for 25% of world GDP.

But the picture is gradually changing. China continues to grow as a world leader in manufacturing with economy of 4.32 trillion. India’s economy is experiencing strong growth along with its population which has now reached 1.2 billion people. Brazil, the largest economy in South America, is also becoming an economic force to be reckoned with. These key emerging markets are creating new opportunities for well positioned companies to harvest the benefits of the “new era of global markets”.

China is viewed as one of the major challengers of US dominance. Its GDP has been growing 6% a year, even when the world was in standstill. Part of the reason why China has enjoyed this unprecedented growth is its smart but very unpopular monetary strategy that keeps its currency undervalued and makes goods produced in China more attractive to US and EU consumers. It is simply cheaper to manufacture in China than it is in US or EU. In addition to manufacturing advantages, China is the biggest US debt holder and it is the country that holds world’s largest foreign currency reserves, mainly in USD. The Chinese and US economies are vitally linked and need each other to continue their growth.

In terms of world trade, in India and China there are close to 2.5 billion people that are willing to work for much lower prices than workers in the US and EU. This presents an enormous opportunity for manufacturers and the logistics industry. As long as the goods are cheaper to manufacture in Asia, global freight demand will most likely recover. As China and India’s domestic GDPs climb, it creates new demand for US and European products. Thus signs are positive that the gradual global economic recovery will continue to stimulate trade and increase logistics volumes.

The logistics industry has long enjoyed the benefits of globalization and the effects of open markets. Changes that are taking place today are opening new windows of opportunity for multinational supply chains. Improving social and economic conditions in different parts of the world, will only contribute to a stronger demand and increased cargo flow.