The 2010s A Lost, Instead Of Blossoming Decade For China?

1100 words - 4 pages

The financial crisis in 2008, having resulted from a tremendous bubble in the real estate market as well as highly leveraged banks and governments, has now become a debt crisis and is still an important in political discussions worldwide. Numerous employees have lost their jobs, many companies went bankrupt; nevertheless, there seemed to be one country that stroke off all difficulties and continued growing at an outstanding rate. In 2009 China’s GDP grew by 9% (www.cia.gov), while all other economies faced severe recessions. For many economists, China is an example for superior economic growth despite state-controlled industries and only limited opening of the market. But recently the number of critics has been increasing and there is much evidence in favour of them. China will face a great economic crisis, if it does not reform soon.
The first argument in favour of the thesis that China might be facing an economic crisis in upcoming years is the similarity in economic development with South Korea and Japan. In all three countries the development followed a common pattern, the so-called Asian-Development-Model. Firstly, growth is capitalized by low wages and booming exports, accompanied by quick industrialization under strict supervision of the state. Afterwards the economy progresses towards more advanced sectors with the help of industrial policies and state-directed finance (www.business.time.com). Both Japan and South Korea pursued this model and headed towards a financial crisis in the 1990s, from which both countries struggle to recover until today. In China the application of the Asian-Development-Model looks as follows: State-directed subsidization, cheap credit for the industry and a controlled exchange rate in order to encourage exports (www.business.time.com). This artificially constructed economic boom has to collapse at some point. In the case of South Korea it did when major corporations began to file bankruptcy and its result was a 34% fall in GNP within one year (www.wikipedia.com). If China will continue its path of subsidizing state-owned companies and shutting out foreign competition it could soon face equally severe problems.
Another argument supporting the theory that a Chinese economic crisis is inevitable is the enormous number of investments China has made in recent years. Currently China’s investment-to-GDP ratio accounts for 46%, which is extraordinarily high, even for Asian standards (www.business.time.com) Often the Chinese government utilized huge amounts of public and private money for economically inefficient projects, such as the high-speed railway linking Shanghai to Suzhou and Nanjing, which the average Shanghai citizen cannot even afford a ticket for. Additional investments benefitted the real estate development, which is the key driving factor of China’s economic growth. Chinese megacities face an enormous shortage of affordable housing for the average citizens; meanwhile numerous high-end apartments for...

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