What are China's next steps?
Chinas Next Steps
China is now dominating the worlds economy and has become an economic superpower. Keeping the recent financial crisis in mind, one can observe that it has come out of it because of a sound fiscal strategy and timely decisions, attracting investment, experience and credit policies. However, the question is whether this transition will ensure countrys success in the foreseeable future. This essay will assess the growth in China and the way in which it has affected its economy.
China has embraced the capitalist structure to transit from communism to the socialist system that is present today in its economy. It is because in order to achieve socialist independency, a country must first establish itself through the capitalist regime, involving investments in capitalist economic reforms. China has been actively investing, and it has allowed private businesses to thrive (Holmes, 2015). However, today, the majority of companies in China are owned by the government, which depicts its socialist structure.
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Chinas economy has undoubtedly undergone a great transition to become the second largest in the world, with the greatest number of exports and exchange reserves (Export Enterprises, 2016). It can be noted by a sudden increase in the nominal GDP from $214 billion, when economic reforms were started, to $9.2 trillion in 2013 (China Economic Outlook, 2016). China has also restructured its tertiary sector, while the secondary remains sizeable. It is also entering a middle-income transition, which slows down growth momentum (Prasad, 2015).
In the recent years, Chinas economic growth is fueled by a shift from mining to dining (Rapoza, 2014). It has focused its services and economy on providing for needs of the middle class, but not on a single resource commodity. It attempts to create consumption demand for protein, fast/convenient food, beverages and related items among other things. It strives to promote growth through capital flows (Spence, 2011). This consumption is rightfully encouraged through e-commerce, bringing products to doorsteps.
Currency manipulation is one of the key factors in this growth. The Chinese currency is such an aspect of the financial sector that has affected the volume of cheap exports from the country. It was internationalized and added to the IMF currency basket as well. The Peoples Bank of China (PBOC) executes the monetary policy to stabilize its finances (Neftci & Menager, 2006). Any variation in currency rates is quickly steadied through reserves (Spence, 2011). Exchange-rate appreciation and rising incomes help to drive the needed transition, while the currency remains strong.
While a positive trend is a neat prospect for the Chinas economy, the extent to which this growth continues may decline. In 2015, after a slight crash of the stock market, the government undertook reforms to re-balance growth, which in turn affected profits of indebted corporations. Despite these measures, the investment influx remains limited. The real estate market has now reached its maximum potential and restricted progression. Its workforce is now shrinking, while the population ages. Moreover, social concerns, such as child labor, inequality and environmental degradation have limited consumption demand (NGO Committee on Education, 2000). Income gaps between social classes are existent. The Central Committee announced a reform to be completed till 2020, abandoning child labor and expanding public services. While Chinas economy encourages rapid changes and constant learning, it needs to reassess its measures for long-term prosperity (Spence, 2011).
China now enters a complex transition process to upgrade its status as an advanced country. It has sustained three decades of growth through implementing successful policies for handling the crisis. The country faces rebalancing challenges crucial for economic prosperity in the future globally. Certain economic factors and global pressures have now been added to its long list of possible encounters. In conclusion, the country needs to balance domestic and international policies to sustain the future growth.
- China Economy - GDP, Inflation, CPI and Interest Rate
- Economic and political outline China - Santandertrade.com
- How China went from communist to capitalist - Business Insider
- The path to sustainable growth in China
- The Four Trends Driving China's Future Growth