China’s Weakness

For all the talk about the roaring Chinese economy, the country still has plenty of weaknesses.

China's massive $54 billion trade surplus with the U.S. masks a big weakness: Beijing's soaring deficit with Asian trading partners Japan, Taiwan, and Korea. For instance, First International Computer Inc., a Taiwanese producer of PCs and their components, with $3 billion in sales last year, now makes half of its desktop computers in China and almost all of its motherboards there. "High-volume production has shifted to China," confirms FIC Vice-President John Villejo. But while exports are surging, half of China's top 40 exporters are foreign-owned, and many of the parts used by such manufacturers are imported.

On top of potential economic problems, China is undergoing strange demographic changes due to their laws limiting the birth rate. Men are highly favored and thus outnumber the women significantly. That could have a major effect on the Chinese economy as that segment of the population ages.