Future Economy
China is the second-largest economy in the world. Moreover, it was the fastest-growing economy before 2015 but has since been overtaken by India (Karam 68). Numerous countries around the world engage in business with the People’s Republic of China (PRC). Therefore, the future of the economy of the country will affect multiple countries. This paper discusses the future of the economy of the country, identifies possible challenges and opportunities, and offers policy recommendations that can be used to ensure that the future economy will be sustainable.
Research Question
Public Opinion
There are mixed perceptions of the future of China’s economy amongst the public. Nevertheless, the latest slowdown in the country’s growth has raised concerns regarding its long-term growth forecasts. The public acknowledges that before the financial crunch of 2008, the rapid growth of China was driven mainly by productivity enhancement following economic policy reforms (Grivoyannis 96). However, the country now relies on investment for growth, and thus, the growth has decelerated and may continue to slow down in the future.
Numerous people are skeptical about whether the country would sustain its position as a major world economy. This skepticism arises from the various challenges that the country faces. For instance, the working-age population has been progressively decreasing since the late 1970s. Moreover, approximately 80% of the population eligible for employment is already employed (Cheung and Haan 20). Thus, there is little room for employment growth to surpass the working-age population. Besides, other several reasons may limit the growth of the economy, such as financial deficits, non-performing loans, and liberalization of the yuan currency.
My Opinion
Despite the challenges that the country may face in the future, China has great growth potential. To illustrate, construction companies in the country have acquired contracts in numerous African countries to build bridges, highways, and other sophisticated buildings. Therefore, the challenge of employment growth increasing with labor is addressed. This is because the Chinese companies operating in geographically different regions can employ locals in the host countries. This move will ensure that the country obtains a significant amount of foreign direct investment.
Moreover, there is a growing demand for electronic products in the country. For instance, the demand for smartphones in Africa has provided a sufficient market for China companies. The majority of the people in the continent prefer the products of China since they are cheap, and the spare parts are readily available. For example, Techno Telecom Limited is a China-based firm that sells mobile phone products exclusively in Africa. Currently, it has a market share of approximately 20%. This market, in particular, is of paramount importance to the economy of China since it ensures that the goods processed in the country are sold.
The recent economic slowdown is a scenario of a middle-income trap, which refers to a situation where fast-growing economic growth decreases acutely as income reaches a threshold level and wages rise adequately to erode the nation’s comparative advantage. Nevertheless, various nations, such as Japan and South Korea, have successfully avoided the middle-income trap and become countries of a high-income status. China will most likely join these countries.
Despite the slowdown, there are numerous reasons for optimism. Specifically, the country has an enormous market potential, comparative advantage in labor cost, abundant labor resources, and a stable government. These aspects will attract foreign direct investment into the country, thus, making the economy grow faster. In the next decade, the economy of the country will surge at a rate of approximately 8%. Furthermore, there are substantial human resources in the country, and labor cost is significantly lower as compared to other industrialized nations. China’s education scheme is fast-developed; hence, more individuals will attain a higher level of education. With these aspects, China’s economy has a perspective future.
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Finally, the ability of the country to manufacture products in bulk has made it an option for numerous nations of the West. Even multinationals from the United States are contacting the country to produce their goods in bulk. For instance, Apple, Inc. is located in California and designs iPhones, which are then manufactured in China. because the option is favorable due to the cheap skilled labor that is available in China which allows the products to be manufactured at a lower cost as compared to if they were produced in California (Fishman 39). Therefore, the future of the economy of China has high growth potential.
Evidence
China’s economy has great opportunities for increasing productivity by lowering the existing distortions and ineffectiveness in its production. For instance, Lin (36) used firm-level data to predict the industry’s misallocation of capital and labor across current manufacturing firms in the country. They established a decrease in distortions between 1998 and 2005 (Shambaugh 46). They predicted a potential total factor productivity gain of 30% for the country’s manufacturing firms if the distortions are lowered to a level similar to the United States (“China Statistical Yearbook”). The scholars suggest that the inefficiencies will be eliminated primarily by the education system which will instill the latest skills to employees that will make them increase their productivity and avoid wastage of resources.
Weakness
Since the country is relying heavily on investment for growth, slow economic growth may intensify. Although the country has a significant amount of human capital, the majority of the working population is already employed. This population is slowly approaching old age where they would not be eligible to work in the industries. This fact poses two significant challenges. First, the country will lose its comparative advantage of cheaper labor (Grivoyannis 27). Thus, the economic growth would slow down. Second, as the working population reaches the non-working age, the country would suffer from an immense reduction in labor and may be compelled to outsource employees from other countries which is an expensive move.
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Support of My Argument
Policy Suggestions
Elimination of Trade Barriers
The country should eliminate all trade barriers that may prevent foreign investors from investing in the country. This policy would enhance international trade and ensure that the nation receives a significant amount of foreign direct investment (Shambaugh 28). Based on the current economy of the country, numerous multinationals may wish to invest in the country. However, when the country has many trade barriers, foreign firms may shy off from investing in the country since they would incur expensive operating costs. Moreover, this policy would reduce the over-reliance on investment for growth.
Strict Policies on Borrowing Money
Banks and other financial institutions that offer money to the public should scrutinize borrowers before lending the money. This policy would help reduce the amount of non-performing loans (NPL) in the country. NPL often causes the amount of credit in the country to reduce since this circumstance hinders the process of credit creation by banks. When clients borrow money and they fail to reimburse the money plus the interest, banks will no longer be able to provide money to customers. Therefore, this policy would ensure that the economy grows when banks have sufficient money to offer to clients (Lin 58).
Conclusion
The future of China’s economy has faced numerous challenges and opportunities at the same time. The challenges include non-performing loans, liberalization of the yuan, and financial deficits. The opportunities involve the markets provided by developing economies in Africa among others. Various policies can be used to ensure that the country’s future economy is sustainable. These policies may refer to the elimination of trade barriers and strict lending procedures helping to address the challenges.
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