China’s rapid growth: is it all good news?
The Rapid Growth of the Chinese Economy:
China’s growth over the past 20–40 yrs has been truly extraordinary. It has transformed from one of the poorest developing countries in the world to its second largest economy. China is continuing to grow and transform South East Asia and its success will surely be one of the most relevant and significant events of the 21st century.
In 1980 China’s GDP was less than $300bn, in 2015 that has risen to 11 trillion making it the worlds second largest economy by market exchange rates. Similarly in 1980 China’s trade with the outside world was less than $40bn dollars increasing one hundred fold to $4trillion by 2015. Measured by purchasing power parity China has surpassed the USA and now accounts for 18% of world GDP.
In 2005 China was building the equivalent size of modern Rome every three weeks. In 2013 a Chinese firm built a 57 story building in just 19 days. So far China has built the equivalent of Europes entire housing stock in just 15 yrs. In November 2015 Beijing replaced a 1300 ton bridge in just 43 hours. By 2016 China had built 26 million miles of road connecting 95% of the nations villages making it 50% larger than the USA’s own highway system. Furthermore China has built the worlds longest high speed train and now has more high speed rail tracks than the rest fo the world combined!
These are incredible improvements in infrastructure and economic power, it is also worth noting that Chinese education has also improved massively now housing the best University in the world for Stem courses and the nation is advancing far faster than any other technologically; housing the worlds fastest supercomputer, over 5 times the USA’s fastest, while boasting a larger quantity of supercomputers than it’s American rival.
But is this rapid growth all good news or are there negative side effects hidden behind the impressive frame of China’s growth?
First of these negatives is China’s debt bubble. In 2017 the credit rating agency Moody cut China’s debt rating for the first time since 1989, stating that the County’s financial health is suffering from rising debt and slowing economic growth, the latter a consequence of it’s significant investments in infrastructure and the economy. This is not just a one off; S&P downgraded China’s sovereign rating for the first time since 1999 citing the nations rising economic and financial risks. This has sparked the debate over wether the worlds second largest economy is leaping over the middle income trap with a sustainable model for economic growth, or whether it is digging itself into a hole of debt in won’t be able to climb out of. Corporate debt in China reached 170% of GDP in 2016, double the average of other economies. These figures have been used to undermine the Chinese economy, however, there are major differences between China’s economy and western economies. In China, borrowers are often state-owned companies and governments while lenders are often state owned banks. In other countries lenders and borrows normally private. When both are state owned the problem becomes a budget issue meaning the outcome depends on the financial strength of the government.
China also has a weak fiscal system with local governments receiving little to no income tax forcing them to borrow from banks to invest in local infrastructure such as roads. As a result of this local governments often sell land too developers to finance schools and other projects. This leads to developers creating an excess of shopping centres and housing apartments in the area that are left unused and vacant.
Real estate prices in larger Chinese cities has risen significantly but remained low in 2nd and 3rd tier cities due to the excess housing. Although the government has urged people to move to smaller cities, they still remain unpopulated despite their low prices as people look for higher paying jobs in the big cities. However China’s major cities are not as developed in the city centre as other countries and thus development is pushed out to the suburbs making property in the city centre too expensive. This among other factors has led to the creation of multiple housing bubbles in China.
