The Chinese economy is growing at a phenomenal rate. This has been apparent in the past few years as the market has boomed. However, does this mean that there will be no future issues for the Chinese economy? The economy is still young, so it will take time for the economy to mature.
That said, there are some indicators that the Chinese economy will have enough economic strength to cope with whatever comes its way. There are two main concerns that have been discussed around the globe. These concerns pertain to the slowing economy in the US and the possible military confrontation between the US and China over Taiwan.
The slowing economic growth rate in the US is being felt right now. Consumer confidence is tepid at best because of the failing housing market. In addition, many economists believe that the US is not effectively using its defense capabilities. These factors have led to a question as to whether or not the US might be moving towards a war with China over Taiwan.
It is hard to see how this issue will affect the overall economic health of the Chinese economy. On one hand, it appears that the US has become increasingly concerned about China's economic growth rate. On the other hand, there is no clear sign that China is moving towards declaring war against the US. It would seem that US concerns are political and economic in nature and not related to their desire to take back Taiwan.
When it comes to the military option, China is definitely on the wrong side of this debate. First off, the People's Republic of China has long been on the opposing sides of every war that has occurred around the world. China's military today is much smaller than the US military and it lacks many of the technological advances that the US military possesses. Second, even if China were to launch an attack on the United States, they would immediately be confronted by our allies in the region. There are too many mutual defense treaties in place for China to just go after the US without them.
There are two possible outcomes when it comes to the US-China economic growth rate debate. One is that the US will raise the interest rates on Chinese assets in order to try and limit the country's ability to make borrowings on US financial markets. This could lead to a severe economic downturn in China and a major reaction from the Chinese people. The second possibility is that the US will cut out all its economic trading relationships with China including those that are necessary for trade.
There are a number of reasons why this could either happen or not. If the US raises the interest rate on Chinese assets, the currency will probably weaken. If the US decides to cut all economic ties, that will also hurt the Chinese economy. It could also lead to a currency devaluation which will make the US dollar stronger, making the Chinese economy vulnerable to a massive recession. However, all of these outcomes are possible but unlikely.
There are two important factors that help determine the actual economic growth rate in China. First, China has been slow to develop other industries that are geared towards high-end commercialization like telecommunications and information technology. These industries were previously . . . . . . developed in western countries where labor costs were lower. The second important factor that helps determine the growth rate in China is the government's decision to liberalize the economy.
The market reforms and globalization have led to a rapid decline in the cost of manufacturing in China. This has been offset by the fact that China has a huge reserve of cheap labor. However, these aspects cannot be overlooked as they have had a profound impact on China's economic growth. As a result, China's economic growth has always been lagging that of the US.
Currently, China's economic growth rate is slowing down, although it may get higher in the future. One of the reasons for this is that there is a slowing population growth rate (due to lack of enough young people to procreate). The slowdown in the economy also hurts China's export sector, especially its import base. A slower economic growth rate reduces China's ability to accumulate surplus foreign currency, a key aspect of its external trade. All of these factors, plus the ongoing threat of US economic war, have played a role in slowing down China's economic growth.
Currently, China's economic growth rate is still above potential. However, China needs to make major structural changes to its economic model if it wants to continue to propel its economy to the next level. One of the most important structural changes is to address the problem of over-valuation. Another important structural change is to enhance industrial efficiency, reduce over-capacity and allow free rein to innovate and invest in new technologies. Only then can China continue its great economic expansion.