By Sean Christian
The Personal Capitalist

        One major winner of the economic crisis will be China. The most populous nation on earth has retained better than 6% annual GDP growth. It has a strong capital position, holding nearly $2 trillion of U.S. Treasury instruments. This provides not only cash for growth but also a major "chip" to play against the U.S. when need be. In fact, China has recently discussed the possibility of replacing the dollar as the world's reserve currency. Secretary of State Clinton recently begged the Chinese to not dump dollars.
        China is also benefiting because they are able to lock in substantially lower material prices. They have acquired stakes in mining operations. The one weak area for China has been a collapse in exports to American consumers. That will be more than offset by domestic infrastructure development (from a true infrastructure stimulus package rather than American-style pork-barrel spending) and rising domstic demand.
        Economists have long argued that the Chinese Yuan was underpriced in global currency markets. This has worked to China's advantage as it strengthened their export position. Now, however, as domestic demand picks up relative to exports, a stronger Yuan is inevitable and beneficial. It will mean higher prices for U.S. consumers but greater purchasing power for the Chinese. They will use this stronger currency and their capital position to buy productive assets around the globe, including in the United States. The net result is that we have bought their consumer products and they will take the money and buy our production, now offered at cheap prices. The economic crisis has in many ways accelerated that transition.
        Recently, the Chinese government announced an important rise in manufacturing output, the first gain in six months. This is an important signal. There are reports of an 18% increase in capital spending devoted to expanding the electric grid. Chinese domestic auto sales have risen for three months in a row and now exceed sales in the United States. That's a substantive milestone as well. The bottom line is that the financial crisis has provided a transition point for China from primarily an exporter to what will be a vibrant domestic economy, no longer dependent on exports. The potential is enormous. It is also ominous for the United States. Our "ace" has always been that we supplied the demand for Chinese production. In other words, they needed us. That position is diminishing.
        In addition to China, other emerging markets, especially Asian and Latin America will also benefit. These nations gave good capital positions, access to natural resources, and rising domestic demand. They will continue to be leaders in economic growth. Over time, as inflation returns, we'll also see strength in nations that produce energy and raw materials. The sad fact is that unless our nation begins to invest in productivity and lessens efforts in wealth transfer, the U.S. position can only decline over time. We're not saying that it's all over for America. This is still the strongest and most productive nation on earth. But, the reality is that the American economy is losing ground over time. This will likely accelerate based on policies being adopted by politicians. At the same time, an argument can be made that we are in the middle of an economic war but just don't recognize it.
        Editor's Note: Sean Christian is editor of The Personal Capitalist, 6911 S. 66th East Ave Ste. 301, Tulsa, OK 74133, 1 year, 24 issues, $195.