Friday, September 17, 2010

Glimpse of Chinese economy

Representing more than a fifth of world´s population, the economic effect of China is vast.

Despite slowdown of investments in China in 2009, the expected GDP growth rate in China until 2015 is predicted to grow. After this, the prediction is for it to decrease whereas rest of the world´s growth rate between 2015-2050 remains even. After the slowdown of 2009, China GDP growth rate early 2010 was 11.9% and expectation for next year 10-11%. Expectations of total retail sales of consumer goods maintain a huge growth rate of 20% in 2010. According to professor Sheriff from Hong Kong Polytechnic University this is crazy. Why is this growth rate a problem?

China´s growth is investment driven. Since the saving rate in China is above 25%, this will prove difficult in case of economic downturn. Should foreign investors stop investments, Chinese government is able to issue bonds to replace part of salaries. This development is not healthy. Growth should not be driven by investments but consumption. Question is how to transform the culture of China to support a higher standard of living. Part of this will be by governmental legislation, strenghtening the younger generation´s position in urban areas and improving their education and purchasing power. Another is the transformation of China to a service based economy through economic development programs.

Report from eMBA study trip in Hong Kong - Shanghai.