The economic crisis in China

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:45

The world economy is developing to the same extent as the economic complexes of the countries that it includes are developing. It is natural that they are interconnected, and when something happens in one state, it also affects others. Today, China is called the locomotive of the world economy, but certain negative trends that are acting or are beginning to manifest themselves gradually deprive it of this title. The country has not pleased economists with double-digit growth rates for a long time, and in the article we will figure out why it happened, what led to this and what the consequences will be if there is a crisis in the Chinese economy.

The current state of China's economy

Despite the table of contents, China's GDP growth rate is the highest in the world. At the same time, the level of GDP per person is half that in the Russian Federation, which to a large extent determines the economic migration of the Chinese to Siberia.

China has a significant number of factories and industries in the world, which made it possible to turn it into a country with a high level of urbanization. The transfer of production was largely facilitated by low wages and a number of other objective reasons, including a ban on the export of a number of raw materials,which is indispensable for electronics (rare earth elements). But with all the gigantic volumes, only 28% of all manufactured products go to the domestic market. Everything else is exported. One should not discount the fact that it is the command-administrative system of governance that prevails in the country, although it has certain characteristics of a market one.

How China's economy has developed

A story about negative trends would be incomplete without mentioning how the economy has developed. The foundations of the modern economy were laid back in the middle of the last century, when the Soviet Union actively helped communist China. Over time, when relations between them deteriorated, the first tried to go his own way, but due to failures, he decided to rely on foreign technologies. Many of them were obtained illegally - through theft, others were redeemed for a certain amount. The production facilities of the third were located in China, and over time, he began to produce exactly such "his" developments.

At the end of the 80s, a crisis broke out in the country that Deng Xiaoping could overcome. From that time to the present, China has been developing, having received the title of "engine of the economy", despite the approaching systemic crisis of the country. So what is the current economic crisis in China?

What are the causes of negative economic phenomena?

First of all, it is necessaryindicate who has the power. The fact is that the country and its economy are run by officials whose knowledge is very modest. Therefore, the necessary decisions come with a certain delay. It should also be noted that there is a significant excess of the amount of exported products over those consumed, which leads to a certain intrastate instability.

The situation with the management personnel of enterprises should also be mentioned. The fact is that under the current regime, failure to fulfill planned targets is not something commendable, so many managers overestimate the capabilities and performance many times or even dozens of times.

Is a crisis a crisis?

Despite the above trends, one should seriously consider whether what is happening in the Chinese economy can be called a crisis. The best word to describe what is happening would be stagnation. It denotes an economy whose growth rate is slowing down with concomitant results. Also, stagnation is often called a harbinger of a crisis, but it is still far away.

Construction sector of the economy

It would be useful to go over the main sectors that create problems for modern China or may create in the near future. One such area of potential danger is construction. Of course, China's population is huge and everyone needs to be provided with housing. But often it is built in such places that there are very few people who want to move there. This gives rise toempty ghost towns. Despite the obvious reserves, construction continues on a significant scale and at a rapid pace, as it supports the busy steel industry, the production of concrete and many other building materials, which ensures economic growth. If the construction sector is put in order and non-stop construction is stopped, then, according to some estimates, China's economic growth will fall to the minimum.

Export of Chinese products

As mentioned above, only 28% of products manufactured in China are consumed by the people of the country, and the rest is exported. This situation makes the state too dependent on the state of the world economy and individual countries, those to which exports are made. Of course, in the event of a global crisis, the economy will not collapse, since other subjects of economic life do not have reserves to replace their products, and will be forced to continue purchasing. But with proper cooperation and a few years of hard work by export-consuming countries, they will be able to create an adequate replacement. Then China may fall into an economic hole, from which it will be very difficult for it to get out.

The amount of products consumed domestically relative to all produced

Special attention deserves consideration of the volume of consumption in the country, because this indicator provides a certain stability and self-sufficiency of the economy. The fact is that domestic consumption is more stable relative tooverseas consumer, because local customers cannot change supplier at the same time. Also, if the value of domestic consumption was greater, this would mean that the inhabitants of the country itself are richer, which, in turn, contributed to greater system stability and reduced the possibility of a crisis in the country. The Chinese leadership has been concerned about this indicator in recent years and is pursuing a certain policy, but it is too early to judge its effectiveness.

Chinese stock and financial markets

Perhaps this section of the article will be the largest. The looming financial crisis in China has a number of manifestations that make it useless to deny it. Initially, we should talk about the credit problem, which worries economists more and more every year. The fact is that in China there is a huge debt of domestic consumption. Thus, loans issued to the Chinese managed to reach twice the size of the country's gross product. In such cases, this inevitably leads to a significant number of so-called "bad" loans, which will be difficult to repay or will not be paid at all. In other words, a huge credit bubble has been created in an economy as large as China's, which, according to some reports, could lead to a collapse comparable to the 2008 crisis, causing first a banking crisis in China, and then around the world.

And a few words about the stock market. In the second and third quarter, everyone heard about the economic problems of the stock market,who fell as a test of the country. Its significant problem is that it is suspended between state control and the free market. Also, among the reasons for dissatisfaction that were voiced at that time, one should mention the secrecy of information about companies, as well as the inability to verify the data provided for compliance with their reality. The stock crisis in China has a small scale of manifestation due to the fact that the stock exchange is small. What would happen if it were the size of the New York Stock Exchange, it’s even scary to think, because it could potentially cause the collapse of the stock exchanges of other countries according to the domino principle.

General economic life of the country

In general, it is still impossible to say that China is destined for economic decline. Despite many negative trends and structural problems, the economic component of this country still continues to be the fastest growing. Also, significant foreign exchange reserves should not be discounted, along with attempts to organize large interstate mechanisms, such as the Asian Bank. We can only observe the decisions of the Chinese government and, in convenient cases, benefit for ourselves by noting the real causes of the crisis in China, so as not to repeat them ourselves.