I think that China is now where Malaysia, Thailand and South Korea were in 1997. At that time, they were mainly export economies. They had a big crash but since they they have reformed and have been able to engineer a boom in local consumer spending (with easy credit). That lifted people’s living standards and make them less dependent on exports.
When China builds it middle class and gets to a critical mass when their own consumers can consume their own products, then they won’t need to lend us money so we can buy their exports. I already see that in the cities. China is focused like a laser beam on economic development. We are focused on terrorism and gay marriage. We’d better prepare now for when credit from China is not so plentiful.
Having said that, I feel that we still have about 10 years adjust.
Japan is a little different. When China becomes their biggest trading partner, they’ll need to invest even more in China. I beleive that notwithstanding the political animosities, Japan, Taiwan, South Korean and China’s economies will eventually become inextricably linked (like the EU).
