Looking at the events of the last couple of weeks the one that stands out the most is the Shanghai Wobble. Is this a minor correction or we closer to the ‘Tipping Point’ of power than we imagine?

I am referring to the point at which the balance of world economic power, shifts from its current position in the USA and the West, to China and the East.

For most of us life ticks a long as usual, we are vaguely aware of the growing economy in China and we know something about their economic expansion. We also aware that China has a growth rate of around 10% per annum. Well for a labour intensive country that is on the verge of its own industrial revolution there is nothing to really get alarmed about or is there?

Well, the economy in the US or any other western country for that matter is struggling to manage a growth rate of 2% or more. So if we were to draw a simple graph we would see that China is now rocketing up the league and is currently in about 4th place. The assault on the number one spot, currently occupied by the United States is now in Chinas sights. If china continues to make progress at the current rate then we will reach a ‘Tipping Point’ when the United States makes way for the new super power. It may take a few more years for this to become a reality but the stock markets around the world are tuned in to Chinas economic and business activity. A few years ago the news of a wobble on the Chinese stock exchange would barely have made the news and there would have been little or no reaction by the western markets as they were so big that they were the trendsetters and not the trend followers.

This time it appears to be a little different as the Shanghai exchange dropped 8.8% it wasn’t unnoticed at all, in fact all the other markets went into a tailspin. To us this is the first sign that we have seen that China’s power and influence in world affairs has been recognised. This reaction clearly demonstrates just how fragile the other major economies are. It is akin to someone saying BOO and everyone else fell over.

The spotlight has now moved from West to East. Yes the western economies are still the largest and very influential but we now need to develop some new economic indicators in order to encompass the emergence of the sleeping dragon. How long will ‘housing starts’ in the United States be as important to the price of Copper before we realise that a nation of 1.3 billion people actually determine the usage and therefore price. A hot summer in the United States would indicate that the air conditioning units were working overtime and the need for energy would drive prices up for oil, gas and electricity. The same would happen if it were a very cold winter the demand for fuel would rise, real or perceived, with the futures market in commodities leading the way. Those metrics are still important but the Shanghai Wobble is telling us that they are no longer the most important factors.

Energy is now clearly a global issue and we can no longer consider ‘national’ events, facts and figures in isolation. Those of you with the vision to anticipate these global influences and develop the next generation of economic indicators will position yourselves in the market place to take maximum advantage of the winds of change that now affect us all.

Are we there yet? Absolutely!

10 March 2007