Chinas Economic Might To Be Worlds No.1 Soon?

December 11, 2012

China’s Economy on top soon?

 

Chinas Economic Might To Be Worlds No.1 Soon? : There is no doubt about it, the sleeping giant has awakened, and China is expected to hold the world’s largest economy by the year 2017, but will this be enough for it to grab the title of the United States and become the next ruling power? More than the GDP: Observing the Economic Status of China. Fact: China’s economy grew by 7.4% during the third quarter, which is one of the lowest rates in its annual quest for expansion.

 

The current premier of China is not a firm believer of the GDP rates. He states that this is simply a man-made figure and it should only be taken as a reference. Alistair Thornton, reiterated this by saying that the GDP growth is far overstated because the economy of China is far weaker than it appears. Contradicting news concerning the true economic worth of China has been published online and in prints that it is hard to discern, which among these analyses is correct. Therefore, it becomes important to dig deeper and evaluate China’s performance based on other factors.

The Banking Sector

 

Fact: The sum of new loans reached $107.4 billion, which is 18% higher from last year, but it is significantly 30% lower if compared with the new loans earned by its bank in the past decade. A strong banking sector signifies a stable economy, but China’s growth in lending shows a declining trend. Beijing has made efforts to boost lending by reducing the interest rates twice in the year 2012. It also reduced bank reserve requirements (RRR) three times, but it has remained adamant in taking any further aggressive action since its last RRR cut in July. Analysis: A new leadership that will encourage bank lending would be very profitable for the country. The banks themselves have displayed a lack of confidence with the quality of their loan books and have responded by increasing provisions for bad debt ranging from 20 t0 48 percentage points.

The Financial Reforms and New Leadership

 

The entry of Li Kequiang as new premier of China arrives at a perfect time and setting. Some of the expected financial reforms that he is too addressing once in position are as follows:

  1. Loosening currency control to increase conversion of the Yuan
  2. Bank freedom concerning the assignment of lending and deposit rates
  3. Growth in the bond market

Apparently, the government wishes to establish a consumer-focused economy rather than an export driven one. The People’s Bank of China has already started with this campaign by processing the interest rate liberalization. It has given banks the license to offer higher interest rates to its depositors in the hope it would reduce excess investment and more spending power to households. Furthermore, it would boost the private sector while giving the middle class more room for their spending and investment choices.

Comparative Analysis with Other Economic Powers of the World

 

Amidst the slower economic growth of China for this year, many individuals are now considering China as the World’s Top Economic Power. This is the result of the new global survey conducted by the Pew Research Center. In their study, all of the members in the European nations that participated in the survey except for one see China as the leading economic power. The same result was shared by citizens of the United States with 40% thinking their country still has the right to hold the spot and 41% handing it over to China.

In comparison to China, the GDP growth rate of the US remains low at 1.7% since 2001 while China has an average of 10.5%. Nevertheless, the World Bank still place the US economy at the top with GDP of $14.58 trillion and China only at $5.93 trillion.

Non-Financial Issues Significant to China’s Economic Growth

 

In a commentary published by Robert Skidelsky, he argues that China may become the world’s largest economy in terms of GDP, but for it to rule over other nations is a different concern because the principles uphold by its government does not support this type of ideology. China supports the values thought of Confucius. One of which is the value of spontaneity, as written in the Analects of Confucius and it states, “Let the ruler be a ruler, the subject a subject, a father a father, and a son a son.” It believes that order in this world is governed in this manner and acts according to its dictate. However, if it is forced to lead the world then it may have to accept this responsibility.