The main risks of the Chinese economy identified
Mariana Puzderi / Chișinău / Moldova.ORG / -- China's economy is deservedly called a miracle. According to forecasts it may well overtake the U.S. economy and become the first in the world. However, some cracks have been noticed in China's economic fundamentals, which will prevent it from moving forward.
Among the main problems there are three highlighted. First, the government is not going to give up on tight control over the market. In this case it has to restrain economic growth and fight inflation, while continuing to raise salaries and saturate the domestic market, writes The Wall Street Journal.
This is necessary because the gap between rich and poor increases, and consumer activity is poor. There are many stores in China, but they are more like museums. People walk past the shop-windows, but do not buy anything.
Meanwhile, consumer spending growth is necessary for the country to get itself rid of the need for goods export.
However, wage growth does not make its factories more competitive. The Chinese are much more willing to buy shirts that are manufactured in Malaysia, because they are cheap. China needs to move to more sophisticated manufacturing goods. This requires reform of the education system, which is now based on Soviet methods of conducting scientific research.
Second, Beijing has recently been obsessed with the idea of making the yuan an international currency like the dollar. This is explained by the desire of China to become a trading power, which uses its own currency when buying and selling goods. Also, if there is a financial crisis, it will be easier and cheaper for China to borrow money from other countries. USA laurels are haunting. But the Chinese authorities will not be able to achieve this goal, leaving interest rates low and not allowing depositors to keep pace with inflation.
According to head of China Construction Bank Guo Shuqing, many people do not trust banks because of too low interest rates and start buying expensive things, as well as gold and silver. The Chinese are also buying properties, not because they need housing. They are looking for new sources of investment.
Low rates are kept by powerful corporate and government borrowers. Trying to make the yuan an international currency means that the practice of saving rates lower than the economically optimal levelwould be abandoned. This implies a transparent economic policy in China. But Chinese leaders are not ready for such changes.
Third, the use of economic brakes tactics does not find understanding among citizens. This suggests that the government does not trust people. And the feeling is mutual.
Social inequality also causes resentment among the Chinese. They complain that top officials send their children to study abroad. And in the countryside about 60 miles north of Beijing you can see dozens of simple farm houses and one three-story mansion, which looks as if it was from another country. Everyone knows that it was built by the local Communist Party secretary. And obviously not on salary.
We recall that World Bank economists believe that China may take away from the U.S. the status of world's largest economy by 2030. This will happen, if in 20 years China's GDP grows by 8%.
Head of Information and Analytical Department of the "Olma" company Dmitry Parfenov justifies the existence of the economic brakes in China as the authorities are afraid of overheating the economy. The fact is that rapid growth poses a risk of infrastructural constraints. For example, strong growth in metal production in China has led to significant energy shortages in provinces.
The expert doubts that China will become the first economy in the world in the near future. The fact is that China lacks many of the mechanisms necessary for the transformation of developing countries to developed countries. For example, China has virtually no pension system.
The limiting factor is also the mentality of the population. For example, the Chinese (by the way, mostly due to the lack of pensions) are traditionally a big part of the revenue saving. This makes it difficult to consume durable goods in the extent to which they are produced in the country. The big problem is the lack of innovation also.
In addition, China - is an agrarian country with a very low standard of living of the majority of the population (with the exception of those living in developed coastal provinces). However, it is understood by the Chinese government also - the country realizes enormous cost infrastructure projects, which should provoke a qualitative growth. "But the certainty that soon they will be able to qualitatively reconstruct their economy, no one has", - concludes Dmitriy Parfenov.
China will be able to compete with the United States for supremacy in the ranking of the largest economies in the world, not earlier than 20 years, agrees analyst "Investkafe" Anna Bodrov. According to her, China has some undeniable advantages - labor reserves, relatively inexpensive labor, a fairly modern and well-established export production scheme.
Another thing is that here, as in any fast-paced process, is necessary the introduction of new ideas and approaches, and, perhaps, a complete modernization of individual production sites. "China has a clear course of development, and it moves towards it. However, China clearly lacks flexibility and modernity "- says Anna Bodrov.
China also requires political and social reforms, adds Dmitry Parfenov. Meanwhile, most of the industries in the country are based on state support and are state-regulated. However, when production volumes are not regulated by market forces, there is no need to expect a significant change in the economic structure.
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