It is now widely argued that the China’s traditional drivers of growth — manufacturing, real estate and local government infrastructure spending — are now among the biggest threats to China‘s economy. Examine why. (200 Words)
After decades of the fastest economic growth in the world, China‘s economy has started to slow down. This is perhaps inevitable, given an average annual growth rate of around 10% was sustained for almost 30 years following the economic reforms introduced by Deng Xiaoping in the late 1970s.
REASONS
- After the global economic crises in 2008 Chinese spending has risen over the years especially in the field of bank credit which led to a debt of 17 trillion USD till date.
- These credits used by the local governments for infrastructure and property building, but recent trend shows low sell of these properties, suggesting the economy cannot rely on construction to boost growth.
- Unnecessary spending in roads, high speed railways, bridges outside priority sectors lead to depletion of funds and now govt. looking towards PPP model which is relatively untried model in China.
- Overproduction of manufacturing sectors (esp. Heavy Industries) lead to decrease in domestic demand and now producers have to look forward beyond the territorial markets.
While Beijing has emphasized reorienting the economy toward consumer spending and market forces, its policy goals around jobs, growth and inflation are still greatly dependent on heavy industry and manufacturing. But the health of industries like steel, railways or housing construction is highly interconnected, and stress in one can put pressure on the others.
Compare and contrast the economic growth of India with that of China‘s since 2008 global economic crisis. Critically examine what this economic growth means to India‘s large population. (200 Words)
India and China had followed different strategies and growth model before the 2008 global economic crisis. While Indian growth story was led by domestic consumption, china‘s economy was fueled by export. But this started to change after 2008 in substantial way.
- Both the countries resorted to fiscal stimulus to revive the economy and reduce the impact of crisis on domestic sector.
- China was more impacted than India due to its heavy reliance on export. The reduced demand in global market forced it to change the model of development.
- China reoriented its economy to stimulate domestic demand. These included encouraging consumption spending by reducing retail interest rates, incentivizing housing sector and diversifying industrial sector.
- India also focused on diversification of its export market. The export to nontraditional region like Asia, Africa and Latin America was encouraged. It paid dividend by accompanied diversification in product and geography.
- China explored alternative ways to utilize its excess industrial capital and huge foreign exchange reserve though setting up institutions like AIIB and One Belt One Road initiatives.
Both the economies have been successful in their efforts to an extent. The accompanied fall in global commodities prices due to reduced Chinese consumption has also benefited India(reduced import, reduced CAD and subsidies and increased funding for infrastructure).