A Storm in a China Cup…?

Photo by Ryan McFarland – link to From Flickr.

The situation in China is an interesting one. Recent news suggests China is marching the world into a dark blackhole due to its recent economic decline, after it plummets itself into a crunch first. I frankly found this hard to believe.

China on the surface seems strong; strongest purchasing power, strongest manufacturing hub, largest trading nation, and largest exporter of goods and second largest importer of goods… The list of China’s power can go on and on like the Great Wall of China. China unlike other democratic nations has the power to plan and control with little or no issue from the population. It does not need to build a consensus for a decision, it just does it. In some ways this has added advantages – the pace that road and rail infrastructure is built or redeveloped both locally in China and internationally is quicker, but equally the communist rheostat has its disadvantages.

China’s approach towards investments is rapid. It has a strong hold on outward direct investment in South America and Africa’s resource rich countries, financing and capitalizing areas such as manufacturing and mining as well as road and rail infrastructure. China’s gameplan on ODI has been a successful modern day colonialism, which would be best left for another site.

Internally, China has drastically reinvented itself from a communist rural economy to a colossal capitalist industrial urban economy. In merely twenty years, it has exceeded what took Britain almost 300 years to do, and ever since the economy of China has been growing. But only recently it seems to have slowed down and what may not be apparent to many is the hidden cracks that could theoretically cripple the grounds of the impressive Chinese economy; however, having said that, in my view the impact will be most serious to China.

It’s hard to say with a population of 1.3 billion what percentage of the Chinese people benefit from this speedy growth. A booming population has definitely become richer, with improved standards of living and disposable income. But I believe a large proportion of the population still suffer with the hardships of shockingly low income and poverty. Rich people spend a lower share of their income than poor people. And the same goes for the working age gap versus retirees. A balance is needed and can be achieved if the economy focuses on consumption-lead growth.

The population are educated and have an expectation of becoming wealthier every year This may not be guaranteed in the future – or at least not at the same pace – giving jitters to the communist party, worries of civil unrest and fear of a revolution. The interests of communist groups are more of a personal interest than for the good of the nation. The masses are aware of this but little can be done. This “latent corrupt” approach lacks the benefits of what a democratic nation would offer – transparency and trust alongside economic stability and security.

China has over invested with little pay off. A classic example are the ‘ghost towns’ of China which stand as an oxymoron – a majestic bootless step to accommodate urbanization by converting farmland into grandiose cities. These now stand as empty, soulless ill-omened cities with sky high towering apartment blocks, vast shopping malls, schools, and sports stadiums all unoccupied. Tens of thousands of Chinese wander homeless, yet 60 million apartments are unoccupied. The population of China keeps growing so there will be need for this space in future. It is inevitable that these cities will one day be occupied, but the impact they have had on the economy for now has been fruitless.

China’s local data on economic development and trends cannot be relied on due to the communist state’s firm hold on information control and freedom of press. It’s not surprising that the Chinese learn more facts about China abroad than in their own country; therefore, it’s hard to tell which way the pendulum will swing. To get a realistic understanding of the Chinese economy one has to study the data out of countries that enjoy strong economic links to China and extrapolate facts to predict the direction China is headed.

A slow down or a recession? The theories are that the Western global recession appeared to have a ‘ying yang’ effect on China by giving the country an advantage during the recession and now a disadvantage as the West ebbs out of the recession. In an effort to keep the economy strong, China has made some unsuccessful resolutions. China devalued its currency to encourage foreign investment, which in the long run was an unsuccessful move as it hindered local consumer spending. Since China is striving to make a difficult transition from an export driven market to a domestically driven market based on consumer borrowing, it frantically cut interest rates to stimulate the economy and consequentially has left many in debt.

In the last few years as industrial growth slowed, the government took steps to change the rules on investments. It allowed pension companies to invest in stocks, and encouraged people to buy shares thinking this would control the market. Sadly this did not. This has driven a bubble into the stock market. The markets do not like uncertainty and China’s opaque government has appeared unsteady to the rest of the world.

All this is without mentioning the long term impact of its degrading air, water and environmental pollution and sanitation, leading to great stress on the world’s highest populous and the nation’s standards of living. With all this said, read, heard and assumed, I still find it hard to predict what direction China is headed towards and what impact this would have on myself or the rest of the world. I feel this will be a difficult time for China and its people, but I believe the country will make the changes required. Maybe it is a good time for a call for democracy.

Global Seven News

Sudeep Bhuller

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