The world economy is developing to the same extent that the economic complexes of countries that are included in it are developing. It is natural that they are interconnected, and when something happens in one state, this also affects others. Today China is called the locomotive of the world economy, but certain negative trends that are acting or are beginning to appear gradually, deprive him of this title. The country has long ceased to please economists with double-digit growth rates, and in the article we will understand why it happened, what led to this, and what will be the consequences if a Chinese economic crisis occurs.
The current state of China's economy
Despite the table of contents of the article, the level of GDP growth in China is the largest in the world. At the same time, the level of GDP per person is twice lower than in the Russian Federation, which to a large extent determines the economic migration of the Chinese to Siberia.
A significant number of factories and industries of the world are concentrated in China, which allowed it to turn 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, among which a ban on the export of a number of raw materials, which is irreplaceable for electronics (rare earth elements). But with all the gigantic volumes, only 28% of all manufactured products goes to the domestic market. Everything else is exported. It should not be discounted that the prevailing in the country is the command-administrative management system, although it has certain market properties.
How did the Chinese economy develop?
A story about negative trends will be incomplete without mentioning how the economy 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 their own way, but due to setbacks, he decided to rely on foreign technology. Many of them were obtained illegally - through thefts, others were bought for a certain amount. Third production was located in China, and over time, he began to produce exactly such "their" development.
At the end of the 80s, a crisis broke out in the country that Deng Xiaoping could overcome . From that time to the present day, 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 should be noted to whom the power belongs. The fact is that the country and its economy are governed by officials whose knowledge is very modest. Therefore, the necessary solutions come with a certain delay. It should also be noted a significant excess of the quantity of exported products over consumed, which leads to a certain domestic instability.
Mention should also be made of the situation with the managerial personnel of enterprises. The fact is that under the existing regime, failure to fulfill planned targets is not something commendable, therefore, many managers overestimate the capabilities and effectiveness at 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 that describes what happens is stagnation. It refers to an economy whose
growth rate is slowing with concomitant results. Also, stagnation is often called the harbinger of the crisis, but it is still far from it.
Construction sector of the economy
It will be useful to go over the main sectors that create problems for modern China or can create in the near future. One of these areas of potential danger is construction. Of course, the
population of China is huge and everyone needs to provide housing. But often it is built in such places that there are very few who wish to move there. This leads to the emergence of empty ghost towns. Despite the obvious reserves, construction continues on a significant scale and at an accelerated pace, because it supports a busy metallurgical industry, enterprises for the production of concrete and many other building materials, which ensures economic growth. If in the construction sector to restore order and stop the non-stop development, then, according to some estimates, the growth of the Chinese economy will fall to the minimum values.
Exports of Chinese products
As already mentioned above, only 28% of the products manufactured in China are consumed by the inhabitants of the country themselves, and everything else is exported. This situation makes the state too dependent on the state of the world economy and individual countries, those to which exports are going. Of course, in the event of a global crisis, the economy will not collapse, as other actors in economic life do not have reserves to replace their products, and will be forced to continue procurement. But with proper cooperation and several years of hard work by exporting countries, they will be able to create an adequate replacement. Then China may fall into the economic pit, out of which it will be very difficult for him.
The value of domestic consumption of products relative to all produced
Consideration of the volume of consumption in the country deserves special attention, because this indicator provides a certain stability and self-sufficiency of the economy. The fact is that domestic consumption is more stable relative to a foreign consumer, because local customers cannot simultaneously change their supplier. Also, if the value of domestic consumption were greater, this would mean that the inhabitants of the country themselves are richer, which, in turn, has contributed to greater stability of the system and to reduce the likelihood of a crisis in the country. The Chinese leadership has been worried about this indicator in recent years and is pursuing a certain policy, but it is too early to judge its effectiveness.
Stock and financial markets of China
Perhaps this section of the article will be the largest. The impending financial crisis in China has a number of manifestations that make its denial useless. Initially, we should talk about the credit problem, which from year to year more and more worries economists. The fact is that in China there is a huge debt of domestic consumption. So, the loans granted 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 not be paid at all. In other words, in such a large economy as China, a huge credit bubble has been created, which, according to some sources, could lead to a collapse comparable to the
crisis of 2008 and cause a banking crisis in China first, 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, which fell as a test of the country. A significant problem is that he is in limbo between state control and the free market. Also among the reasons for the dissatisfaction that were voiced at that time, it should be called the confidentiality of information about companies, as well as the inability to verify the data provided for their reality. The stock market crisis in China has a small scale because the stock market is small. What would happen if it matched the size of the New York Stock Exchange? It’s even scary to think, because it could potentially cause the collapse of exchanges of other countries on the basis of the domino principle.
General economic life of the country
In general, it is 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 an Asian bank. We can only observe the decisions of the Chinese government and, if necessary, benefit for ourselves, noting the real causes of the crisis in China, so as not to repeat them ourselves.