Abstract
This research aims to assess certain features of the Chinese economy to identify why the country is currently failing to uphold export-based growth, and what factors are preventing the country from boosting the export sector further. Moreover, the paper would analyze the fresh growth engines, evaluate how fast would be the ‘new normal’ growth, and scrutinize the economic, political, and social reforms critical for China to maintain sustained and strong economic growth in the future. Even though the extensive reforms allowed China to experience increased efficiency resulting in a tenfold rise in the gross domestic product since 1978, after the global financial crisis, the country has lost its vitality in the export sector, making the overall economic growth slower. Luckily, China has found new growth sectors to boost its economy over a longer period, and the government is nurturing these segments through different mechanisms.
Introduction
With the widespread reorganization of the economy through the means of fiscal decentralization, rising independence of the state-own organizations, the rapid expansion of the private sector, and liberated trade and foreign direct investments since the 1970s, China has shifted from a centrally planned to a more market-oriented economy, becoming the biggest exporter of the globe in 2010,
Why China is Failing to Grow Relying on Exports
According to Yao (2016), China is failing to retain constant economic growth from the export sector in the recent years due to a number of reasons; however, one of the major factors is that the country’s export-led growth model has reached its limits and the credit-driven investments can merely provide transitory support in this area,
In addition, when global economic downturn started to haunt the entire world, international trade mechanisms faced an abrupt disintegration, posing serious threats to China’s export competitiveness because as the global leader in trade, the country is critically reliant on the foreign markets, and it cannot continue to accumulate sufficient gross domestic product if export demands continue to fall,
It has been further suggested that even though the world has recovered from the financial crisis, according to recent statistics, international trade is persistently diminishing in volume, reducing China’s chances to revive its exports by means of different political and fiscal strategies,
What would be the New Growth Engines for the Country
The State Council (2016) reported that China has recently sat in a dialogue with the President of World Bank, Managing Director of International Monetary Fund, and the Director-General of World Trade Organization to discuss the new growth engines of the country and the overall economic transition that occurred because of the shift in the sectors affecting growth,
It has been noted that the fresh driving forces are expanding, reflecting the country’s central planning to reform and boost growth with a structural shift in the macro-economy – the speakers stated that the new growth engines include great innovations, new types of businesses (such as crowd-based businesses), together with rising foreign investment, rapid urbanization, and most importantly, booming service sector,
The State Council (2016) further suggested that all these fresh growth factors are promoting the country’s economic development, structural change, and employment situation, and the government is fully supporting the change by leveraging human capital advantage, overseeing industry-wide reforms, and strengthening the new sources of growth,
How Fast would be the New Normal Growth for China
Yao (2016) noted that since the international financial crisis, growth rates have declined from double digits to around eight percent each year; as a result, Zhang and Chen (2017) stated that in China the economy is entering the period of a ‘new normal’ because the past growth factors can no longer promise lucrative output in the post-recessionary world,
Yao (2016) suggested that exports have turned out to be less significant for economic growth because export growth has dropped from a yearly rate of 29% (from 2001 to 2008) to below 10% in current years, and since 2014, the service sector has contributed to above 50 percent of the nation’s expansion, representing the new normal with strong expansion rate. The author further analyzed that the ‘new normal growth’ is expected to be truly fast, and it is likely that the country will see a rapid expansion of this fresh economic sector within the next ten years,
Economic, Political, & Social Reforms to Maintain Sustained Economic Growth
Hye (2012) noted that there are a number of economic, political, and social transformations vital for the country to uphold powerful growth in the upcoming years; in addition, Zhu (2012) argued that social factors like rapid urbanization, inequality, and poverty, and political factors like governmental policy and ownership reforms could have an enormous influence on sustainable growth,
Shambaugh (2014) stated that the economic reforms critical to maintaining sustained growth in the future include modifying the macroeconomic growth model, reducing monopolies and state-owned enterprises, forming a true national labor market, relaxing the financial sector, deregulating the central regulations, establishing free trade zones, boosting budget transparency, and revising the tax policies,
The social reforms include diminishing social inequalities, eradicating frustrations and unrest, maintaining communal harmony, lowering income disparities, and creating job opportunities. Shambaugh (2014) added that the political reforms should involve ensuring transparency, controlling corruption, defending human rights, and improving diplomatic relations and foreign ties,
Annotations
Hye, Q, (2012), Exports, imports, and economic growth in China: an ARDL analysis, Journal of Chinese Economic and Foreign Trade Studies, 5(1), 42-55,
Hye provided an exhaustive analysis of China’s export-related growth and trade deficit sustainability, whilst assessing the deep-rooted link that lies within the economic expansion and the exports sector of the country,
Zhang, J, & Chen, J, (2017), Introduction to China’s new normal economy, Journal of Chinese Economic and Business Studies, 15(1), 1-4,
The authors evaluated Chinese economic reforms, challenges to market growth, and corruption, and found that the growth rate has fallen significantly; moreover, the research also focused on the governmental attempts to revive the economy using a ‘new normal’,
Zhu, X, (2012), Understanding China’s growth: past, present, and future, Journal of Economic Perspectives, 26(4), 103-124,
Zhu conducted a thorough historical analysis of the Chinese growth trends in order to understand the country’s future growth potentials; in addition, he also investigated the factors that could allow the country to ensure future sustainable growth,
Conclusion
It is notable that even after the downfall of the export sector caused by the global economic turmoil, the Chinese economy is still managing a generous growth rate throughout the last few years due to the governmental support for the new growth sectors. This new normal growth is expected to be truly rapid, and the country is now trying to maintain sustained strong economic growth in the future through certain economic, political, and social reforms.
Reference List
Hye, Q. (2012). Exports, imports, and economic growth in China: an ARDL analysis. Journal of Chinese Economic and Foreign Trade Studies, 5(1), 42-55.
Shambaugh, D. (2014).China at the crossroads: ten major reform challenges.Web.
The State Council. (2016). Full text: joint press release on the ‘1+6’ round table. Web.
Yao, Y. (2016). A new normal, but with robust growth: China’s growth prospects in the next 10 years.Web.
Zhang, J., & Chen, J. (2017). Introduction to China’s new normal economy. Journal of Chinese Economic and Business Studies, 15(1), 1-4.
Zhu, X. (2012). Understanding China’s growth: past, present, and future. Journal of Economic Perspectives, 26(4), 103-124.