China maintains a unique economic system. It starkly encourages and supports domestic companies. It obliges foreign companies to set-up factories and transfer technology to local workforce for operating in China.
It tightly controls stock market, banking sector, and strategically important state-owned enterprises. It has developed supercomputers, top-class universities, splendid infrastructure, and terrific defense system.
The Red Dragon also bans Google, Facebook, Twitter, Instagram, WhatsApp, and YouTube as well as a number of international dailies including The New York Times, The Wall Street Journal, Financial Times, and many more.
Nation’s central bank – The People’s Bank of China – firmly influences yuan to dollar value; mainly to protect its exports to the United States. It does so successfully owing to its much lower cost of living as compared to the United States.
All these administrative, strategic, and infrastructural efforts have matured to bake China into a herculean economic and military power that can essentially challenge the most dominating nation-state in the world, the United States.
China’s GDP growth averaged nearly 10% a year – the fastest sustained expansion by a major economy in history. Although, its growth rate has slowed down to below 7% but its growth trajectory is still very impressive by current global standards.
This wheeling growth has enormously elevated living standards and pulled more than 727 million people out of poverty. The proportion of population living below $1.90 per day fell from 75% three decades earlier to below 2% in 2013.
Additionally, the strict regulations have calmed WeChat and Weibo to become domestic social media giants and vouched SEOs to realize a profit of 1.72 trillion yuan ($253 billion) at a growth rate of 21.1% in H1-2018.
Incidentally, three of the SEOs have made to second, third, and fourth spots in Fortune Global 500 for 2018, after Wal-Mart. Its Tencent Holdings remained the most-profitable company in China with a profit of over 30%.
China’s Tencent along with its e-commerce platform – Alibaba – each has a market value of about $500 billion which is within a striking range of Facebook’s market cap and just trails behind only Microsoft, Alphabet (Google), Amazon, and Apple.
From an economic backwater, China has demonstrated an explosive growth to become world’s second-largest economy through introduction of economic reforms and trade liberalization in late 1970s.
It spotted and wakened the napping economic drive by gradual transition from agriculture to industry-based economy and focusing on fixed assets investment (FAI) that is billed at about $10.9 for the first half of 2018.
Through sustainable economic reforms, China encouraged rural enterprises and private businesses, increased government spending, stirred real estate, fostered savings, invested in industrial production, and boosted exports.
BUT the productivity was the most important factor which gave a true impetus to the Chinese growth. The 1997 IMF publication cited that prior to 1978 reforms, nearly 4 in 5 Chinese worked in agriculture; by 1994, ratio was dropped to only 1 in 2.
Reforms expanded property rights and unbridled a race to form small non-agriculture businesses in rural areas. ‘Decollectivization and higher prices of agriculture products also led to more productive farms and more efficient use of labor’.
The instrumental measures lured many workers to out of agriculture – resulting in rapid growth of village enterprises and drawing tens of millions of people from traditional agriculture to higher value-added manufacturing.
However, China is still a developing country as its average per capita income is only a fraction of mature economies – only RMB 23,821 ($3,506) with over 43 million Chinese were poked in below poverty line (<RMB 2,300).
Per capita income of rural households is also very low – RMB 12,363 – as compared urban households’ RMB 33,616.
The growing China’s imbalances are frequently debated in international policy discussions as its external debt continued to increase from Q1-2017 by 7.8% or $132.9 billion – to over $1.8 trillion at the close of first quarter of 2018.
Eyes were lit-up after Beijing recently registered its first quarterly current account deficit for almost 17 years – $34.1 billion as the imports outperformed exports. The previous deficit dates back to 2001 when China joined the World Trade Organization.
In spite of some tailwinds, Chinese economy is rejoicings many headwinds. It is not only maintaining a strong GDP growth but also has achieved upper-income status as well as becoming an utopian place for foreign investors.
In the first half of 2018, China listed a total of 29,591 foreign invested companies (increase of 96.6% y-o-y) that brought foreign capital of more than $68 billion, mostly in high-tech manufacturing industry of the country.
China’s job market also witnessed a positive trend as its urban unemployment rate contracted to 3.83%, lowest for the past few years. As much as 7.52 million jobs were created in urban areas in the first six months of 2018.
In its latest Country Focus, IMF gives a strong economic outlook of China’s economy.
The report stated that after decades of high-speed growth, the government is now on high-quality growth. ‘Even with a gradual slowdown in growth, China could become the world’s largest economy by 2030’.
With 700 million of internet users, including 282 million native users (below the age of 25) – the supportive regulatory and supervisory environment has rallied the large scale China’s market to become a global digital leader, the analysis observed.
The international financial institution applauded growing China’s rebalancing efforts that would increase spending on health, education, and social sectors. The additional spending would be financed by taxes on income, property, and carbon emissions and would also support consumption, and reduce income inequality and pollution.
Global growth is heavily reliant on the China’s economy as well. China consumed about 50% of all copper and aluminum and 60% of total iron ore produced globally in 2016 and 2015 respectively. It accounted for nearly 12% of total global oil demand while it is also a very large buyer of agriculture products.
In order to meet the strong domestic consumer market, China aims to lessen its reliance on exports through its strategic plan ‘Made in China 2025’, embracing German concept of Industry 4.0 or fourth industrial revolution.
Made in China 2025 is a blueprint of upgrading domestic manufacturing industry and transform China into global technology powerhouse in the fields of new advanced information technology, aerospace, automated machines and robotics, modern rail transport, power, and energy equipment, advanced medical products, and energy vehicles.
The country’s development plan seeks to transit from labor-intensive to development of value-added manufacturing and raising domestic content of core components and materials to 40% by 2020 and 70% by 2025.
United States sees the plan contrary to its global trade interests and Trump’s imposition of trade tariffs on Chinese goods is an effort to downplay China’s development of advanced manufacturing products.
Although the United States is fretful of Chinese development of advanced technological goods but candidly China’s sustainable growth is indeed vital for global economies which ‘could benefit from the deeper international cooperation and financial integration of China into global economy’.