The growth of the Chinese economy has been one of the most significant developments for the global economy. The implications of Chinese growth, combined with a population of 1.4billion, have far reaching effects on the rest of the world.
Firstly, the Chinese economy has a growing appetite for imported raw materials. China is taking up to 33% of the increase in demand for oil. Chinese manufacturing industries are increasingly demanding more raw materials causing rising prices and potential cost push inflation.
The Chinese current account surplus remains stubbornly high, despite recent devaluations of the dollar, the Chinese current account deficit is over 10% of GDP or $250bn. With all the foreign currency the Chinese are wielding increasing economic and political influence. For example, recent comments by low ranking Chinese officials about the need to ‘diversify from weak currency’s ‘ led to further falls for the US dollar.
If the Chinese were to sell their dollar assets it would cause serious economic problems for the US economy.
Despite the continued double digit growth of the Chinese economy there remains many potentials problems for 2008 and beyond.
- Inflationary pressures. Inflation is rising close to 5%, this could potentially lead to a boom and bust economic cycle.
- Growing inequality between north and south
- Shortage of raw materials could push up prices and costs
- Slowdown in US economy – the main trading partner.
- Continued unemployment due to privatisation of inefficient state owned industries.
- Disguised unemployment amongst the poor farmers, especially in the north
|Human Development Index||75.5%|
|Main Trading Partners||United States 21%, Hong Kong 17%, Japan 12% South Korea and Germany|
|Education Spending as % of GDP||u/a|
Economic Statistics China
|Average Growth 1994-2007||9.1%|
|GDP per head||$1,470|
|Current Account Deficit||+10.9%|