What Lies Beneath China's Growth
In the fourth quarter of 2013 China’s economy grew
7.7% from 2012, however their gross domestic product fell to 9.5% from 18% two
years ago. This article illustrates the worry signals for China’s economy in
the future due to slower growth despite the country’s overall growth in the
last quarter. China is transforming from being investment-based to a
consumer-driven economy. With slower GDP growth this could be harmful in the
long run. Automobile sales were strong in 2013 but a drop in disposable income
will make consumption like this hard to sustain. China’s growth in the fourth
quarter in 2013 did not flow into the beginning of 2014. Industrial production
growth dropped twice in December, slowing to 9.7% at the end of the month.
Fixed-asset investment also slowed.
China’s growth boosted from their strength in production
and investment opportunity, which western countries who have been
consumer-based economy’s in the past have taken advantage of which resulted in
increased growth, especially in the U.S. Because of this co-dependence of the
U.S. and China in the past will change dramatically with China’s new change to
a consumer-based economy. Less emphasis on production in China will affect the
U.S. and competition for consumer goods will increase dramatically. It will be
interesting to see how relations of China and the U.S. will change throughout
2014. China’s property sales are also declining, which could be a result from
its increased demand to be a consumption-based economy.
I love articles on China because China's centralized, command economy is apparently the next-best macroeconomic development theory (or so we are told). I have always been reluctant to bet long on China because of certain fundamentals. One, the state's shadow banking will become unsustainable without the incredible growth rates to sustain its losses (sustained because of government control over the factors of production). Second, in a more very-long run sense, the Chinese population controls will prevent it from joining the ranks of other rich (in gdp/per capita measurements) countries because it "got old before it got rich." Naturally, the incentives would exist that as you have more money, you can have more children, and this increasing population ensures a higher aggregate demand each generation. If China simply sustains its aggregate demand, it will not have the dynamism it has had. That is not to mention the possibility of artificial wage increases because of shortages of workers (instead of an increase in productivity). Regardless, the world and I will be watching China.
ReplyDeleteChina has one of the most complicated growth rates of any nation. One credible source will say their growth rate is 7% while another source will say that it is only around 5%... it is important to keep in mind real vs gross growth.
ReplyDeletehttp://usa.chinadaily.com.cn/business/2014-02/27/content_17311173.htm