Impact of China's rise on the world economy.

Impact of China's rise on world economy
1) huge increase in global current account imbalances
2) global decline in nominal and real yields on all forms of debt
3) increase in equity risk premium (gap between earning yield on equities over bonds)
4) increase in global returns on physical capital

1 and 2 can be explained by the global saving glut, loose monetary policies, but a massive increase in global labour supply and extreme risk aversion of creditors from emerging economies explains 3 and 4.

We have seen that the accumulation of net overseas assets are entirely accounted for by public sector acquisitions and channeled principally into reserves.

The global balance of trade and economic power has been tilted by the resurgence of the Chinese economy, and this will have a large impact on global trade and growth in the future. China has already started acquiring raw materials directly by buying into companies with large reserves and will continue to do so in a larger way to secure its vast needs for growth.

We will continue to see the expansion of their growth and there will be opportunities for investors who manage to identify targets that are aligned with the Chinese interests for raw marerials.

Eric Tan,
London