The Chinese growth story - Look back and way ahead…..
The Chinese economy made headlines last week when updated data by the IMF reflected that the Chinese economy ranked number one in terms of Purchasing Power Parity. Historically, the now ‘emerging nations’ had dominated the global GDP scene. The onset of the industrial revolution was the watershed moment for the now ‘advanced economies’. US in particular was most successful in harnessing disproportionate gains from this paradigm shift and emerging as a world leader in terms of GDP. The recent decade witnessed ‘catching up’ by the emerging economies with China as the strongest player. In terms of per capita income however the Chinese economy has a long way to go – currently ranking 93rd in the world (out of 199 countries).
The image has been sourced from the article published by: The Economist.
The last couple of decades witnessed China move ahead exploiting the idea of export fueled growth supported by cheap labor costs and declining transportation costs. Consequently, exports soared from 16% of GDP in mid-nineties to ~27% in 2008. One of the major consequences of higher exports was large accumulation savings and eventually translating into dollar denominated debt. As of July 2014, China accounts for 21.09% of the $5.1 trillion dollars of US debt owned by foreign governments.
The accumulation of dollar denominated debt played its controversial part in currency manipulation whereby Chinese exports maintain competitive advantage despite rising demand. In the recent past the Chinese government has faced criticism owing to maintaining an undervalued Chinese Yuan.
Post the crisis however, the growth story slowed down as we know with current GDP forecast being somewhere between 7.1 and 7.3%, as opposed to >10% growth in 2007. The export share of GDP however continues to remain stable at about ~26.4%.
The image has been sourced from article from Forbes magazine.
Despite recording strongest GDP growth numbers among the BRICs nations (Brazil: 0.3% Russia: 0.2%, India: 5.6%) the growth estimate is modest and indicative of the slowest year on year expansion since 2009.The slowdown has mostly been triggered by sluggish movement in the property and real estate department. The Chinese government has also started focusing attention on much needed infrastructure development accompanied with loosening monetary policy and stimulating domestic demand. This is particularly well timed since economic activity in the rest of the world particularly the Euro is witnessing sluggish recovery.
At this juncture, it is important for the Chinese economy to focus on productivity gains to sustain longer term growth as much of the GDP expansion that the country witnessed has been attributed to larger employment of labor and capital. Thus, underscoring the importance of infrastructure investment and development.
The major short term challenges ahead if the Chinese economy comprise of transitioning from export led growth to greater emphasis on stimulating domestic demand as incomes rise. Environmental factors also contribute to the short term slump as shift to a clean iron ore and coal technology is time consuming. Finally, political scenario in Beijing calls for a much needed re-vamp and move away from excessive state and bureaucratic intervention.
The IMF points out that despite of these short run concerns which most likely will lead to a temporary deceleration, the Chinese economy is on a robust long term growth trajectory.
So what are your thoughts?
The content for the blog has been sourced using:
U.S. National Debt Clock October 2014 , China offers hint of growth prospects, Germany expects more bad news , China Economic Forecast 2014 - 2015: Rocky Growth , When giants slow down , Unproductive production , China’s back , RECENT DEVELOPMENTS, PROSPECTS, AND POLICY PRIORITIES
Accusantium enim aliquid ab. Eos voluptatibus voluptatem ea. Modi consequatur velit mollitia architecto reprehenderit.
Qui et non quod odit molestiae at. Beatae autem ex est dicta in non. Quia tempora in commodi laborum ea. Itaque voluptatum quo laboriosam in ipsam excepturi. Libero et optio distinctio qui.
Dolor necessitatibus error officiis mollitia et fugiat. Cupiditate omnis maiores consequatur dolores. Quae excepturi omnis facere sunt dicta nihil nam nemo.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Aut dicta ab autem voluptatem ut et cum. Sunt vero aut temporibus minima enim doloremque ea. Architecto porro inventore qui dolores qui.
Ex dolorem ipsam dicta officia voluptate ea animi. Et illum veniam ratione nam sed ea debitis nobis. Ut dolore ab eum et velit aut sint laborum. Id quod necessitatibus aut cum qui deserunt molestiae minus. Aliquid earum voluptas a eos facilis. Facere libero tenetur distinctio earum tempora eius animi. Beatae ea dolore excepturi corrupti.
Quam doloremque vero qui expedita placeat et quidem similique. Ipsa consequatur velit magni est dolore laborum et. Autem accusamus facilis quasi.
Alias dolorem voluptates et consequuntur. Doloribus minima beatae modi ut velit porro eligendi. Voluptatibus totam dolor voluptatem maxime modi veniam excepturi. Consectetur exercitationem quo aut accusantium et minus. Sint nemo culpa sequi corporis fuga nobis corrupti. Eius accusantium nesciunt et perferendis eos. Dolorem dolor est quia.
Repellendus corporis velit aut commodi ab esse. Fugiat fugit deleniti ad eum. Placeat labore placeat commodi ut nesciunt dolorem. Possimus consequatur aperiam earum qui molestiae et quo.
Sit deserunt aliquam nihil consequuntur dolores enim. Molestiae ut in et assumenda. Sunt qui optio porro dolores. Temporibus est corporis cupiditate repellendus sit dicta dolorem. Ducimus impedit a enim maiores quasi enim.
Molestiae eligendi quibusdam occaecati placeat aut. Nulla amet sint ut rem nihil corrupti velit.
Qui hic accusamus eum delectus sequi nesciunt. In nisi veniam eum temporibus omnis voluptates. Voluptatibus repudiandae vero quam incidunt labore corporis.
Id at commodi et accusantium. Aut qui quia nulla repudiandae sed consequatur. Voluptatibus harum excepturi aliquam reiciendis voluptatem magnam. Dicta omnis officia nihil excepturi eos dolores laboriosam adipisci. Eum quo repellat omnis similique animi. Dolores veniam non corrupti minus voluptatum.
Cum ea dignissimos ut tempora et sit eum laboriosam. Repellat error minus unde ex. Molestias nulla veniam earum neque voluptatibus quia.