What Is The Future for the Chinese Economy

Anybody who watches the news is probably aware of which country is the new global powerhouse.   Whilst most modern economies struggle with minimal growth, the Chinese economy continues to grow.  Economists are starting to worry about what lies in the future for China.  One of the worries is that the huge growth has been largely fueled by credit and goevrnment debt.  People are beginning to suspect that this situation is looking increasingly unsustainable.

The IMF for instance has suggested that the Chinese economy needs to restructure and quickly.  The problem is that the economic growth is reliant on consumer and industrial exports, that simply can’t continue to support that level of growth particularly with recession biting in many of it’s target markets.  

The distribution of wealth is also a concern, very little is in the hands of ordinary families and smaller private businesses. These are the people who are able to support longer term sustainable growth – by developing domestic demand,  Nobody is suggesting that China’s growth will stall in the short term, but there are worrying signs all across the economy.

The manipulation of interest rates, kept artificially low in order to boost growth has had an impact on financial services.  Many new financial products have been developed in order to attract new investors and depositors.  These show a worrying similarity to some of the mortgage products that caused the American financial crisis.

China has other issues as well which may impact it’s ability to grow in the future.  Current growth has come at the cost of some serious externalities – pollutions levels are incredibly high in many cities.  The costs of solving these environmental problems may turn out to be much higher than the original growth earned in cauisng them.  China also has some serious issues regarding digital infrastructure with the heavily censored communications network. 

Getting IT systems to work across China can be hugely challenging due to the Great firewall of china and the heavily filtered internet feeds.  It can be a difficult task to get a US Feed of Netflix working like this – http://www.theninjaproxy.org/ninja/american-netflix/, never mind trying to incorporate a companys document management system to be accessible in Beijing for example.

The new Chinese government knows it needs to change, however whether it is able to is another question.

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