China's Economy

12/1/15

Overview

In 2015, the Shanghai stock market lost more than one-third of its value, creating financial ripples throughout the world and sparking broad criticism of how the Chinese government is managing its economy.  Join Active Minds for a look at China’s complex journey from a sleepy Communist economy to one of the most important financial forces in the world.

Key Lecture Points

  • After Mao Zedong’s death in 1976, China moved from a communist centrally-planned economy to a more market-oriented one that is now a major force globally.  In 2010 China became the world’s largest exporter.  In 2014 it became the world’s largest economy based on GDP.  But with this growth has come domestic problems: disparity between rural and urban incomes; environmental damage; an aging population and unrest over labor conditions.
  • When China announced that its economy grew 7.4% in 2014, its slowest rate in a quarter-century, and just below its target of 7.5%, it set off concern in international markets.  Because of the extent to which the global economy is now interconnected, the rest of the world worried that a slowdown in China would mean slower growth for them, too.  Because China rivals the US as the world’s largest economy, even modest Chinese declines can have a significant impact on economies around the world, particularly for countries that sell commodities to China.   The immediate cause of the lower growth rate is the slowing of foreign demand for Chinese goods.  This is not unexpected as China reaches the point of diminishing returns characteristic of any maturing and large economy.  Compounding the slowdown is the overcapacity of infrastructure that China has been building and which has been financed by a binge of borrowing that nearly doubled China’s total debt within five years.
  • As the Chinese economy matures, to maintain sustainable growth it needs to transition from a dependence on exports and investments as the drivers of growth to a consumption-driven economy.  To raise its low domestic consumption rate, China will need to reduce its high domestic savings rate, facilitate higher wage opportunities for its growing middle class, and reduce corruption.
  • While China and the US move farther apart on issues like China’s military expansion in the South China Sea and cybersecurity/cyberplunder issues, the two countries become ever more intertwined economically.  China’s recent acknowledgement that stealing intellectual property for commercial gain is off limits is considered a positive first step in addressing the escalating cyberconflict between the two countries.

Exploration Questions

  • What are the major causes of the slowdown in the Chinese economy?
  • What socio-economic issues will China have to address to sustain its growth rate?
  • What are the major economic issues in the US/China relationship?

Reflective Questions

  • Do you think China can continue to sustain high levels of economic growth?  Why? Why not?
  • Name the consumer goods you purchased in the last 30 days that were made in China.  Are you surprised at the number?

More to Explore

Books for Further Reading

  • Paulson, Jr., Henry M., Michael Carroll.  Dealing With China: An Insider Unmasks the New Economic Superpower.  Twelve, 2015. 448 pages.   Former Treasury Secretary Paulson discusses how China became a superpower so quickly, how business really gets done in China and what are the best ways for Western businesses and political leaders to work with and compete with China.  It is a definitive guide as to how to engage with China.
    Click here to order
  • Osnos, Evan.  Age of Ambition: Chasing Fortune, Truth, and Faith in the New China.  Farrar Straus Giroux, 2015. 416 pages.  The author served as the New Yorker correspondent to China.  In this book he describes contemporary China and the clash between the rise of the individual and the Communist Party’s struggle to retain control.
    Click here to order
  • Christensen, Thomas J. The China Challenge: Shaping the Choices of a Rising Power.  W. W. Norton & Company, 2015.  400 pages.  The author is the former Deputy Assistant Secretary of State for East Asian and Pacific Affairs.  In this book he assesses the current US/China relationship and describes the challenge of dissuading China from regional aggression while encouraging China to contribute to the world order.
    Click here to order