I returned from a one week stay in Shanghai and I was just amazed by the sky scrapers in that city and how many are under construction. From the 50th floor of my hotel, I could either see apartment buildings or sky scrapers. However, pollution is a real problem and water and air are distinctly worse than in San Diego. Traffic is insane there and people are always trying to sell you something.

The positives of China are that they just produce almost everything person needs for daily life. People work hard and have turned into money minting machines more or less. I was very impressed by China’s infrastructure of roads/Telecom that is world class. Human resource is cheap and will stay cheap for sometime as there is a huge migration of people from villages to cities and new industrial cities are growing rapidly.

The main problem with China is definitely that most of the money seems to be in the pocket of certain %age and government and major population is very savvy with money. I talked to a Chinese guy who made money from defaulting loans from banks as there are lots of loop holes. Pollution is just an enormous issue (you can always feel it as you breath) and will soar Chinese health costs for sure in the coming generations. An important difference I noted was that most people listen to the comunist media and are anti US but also lack the creativity of US workers. Housing prices in China have quadrupled in last 7 years and have not shown signs of cracking but may will do. However, unlike US it is not tied to consumer spending in China. Entertainment opportunities are limited for Chinese people. Prostitution is widespread and one child policy is a concern for most Chinese as they depend on children for their old age.

For me China will be facing real challnges in about 7-8 years. Right now, the main consumer of western prodcuts (mainly cell phones entertainment, etc) in China are few top percentage of wealthy people and new generation in cities inspired by MTV and addicted to big franchises. Otherwise most middle class Chinese already consume everything produced from within China and I don’t think they can extend themselves to replace the huge US consumer spending. The middle class wages are ok but it is already extended considering the increase in oil/housing/transportation/health costs. Healh costs are not provided by corporates or government and are soaring considering pollution. Factory workers have to save money to take care of unpredictable accidents in life. I just don’t see the Chinese consumer being able to offload the US consumer and the Chinese government knows this.