It is easy to assume that China will become the world’s new superpower from analyzing the nation’s burgeoning GDP figures. However, recent data research shows that this assumption may be too far stretched. There are various intricacies and factors that determine whether China will either continue growing or just go bust. Although it may seem too pessimistic to say that China will collapse, the theories below provide very convincing evidence that this fall maybe inevitable for the superpower.
One of the key problems with the Chinese economy is the lack of personal consumption. One might say, ” well that’s easily rectifiable, just provide a stimulus like lower interest rates to jump start demand.”. Well, life ain’t that easy. One of the major determinants of this low domestic demand is the astonishingly low wages. About 43% of Chinese labor earn less that USD 2 per day. Furthermore, the impacts of the one child policy and nation’s communist political system has left the people in a frenzy of precautionary motives. Due to the one child policy, the average Chinese worker thinks that there will be no one to provide for him when he turns old and the state’s totalitarian values do not ensure the provision of a pension, social security benefits and welfare benefits. So no wonder these people are pinching their pockets!
Demographics also play a huge role and from the looks of China’s demographic structure it isn’t looking pretty. due to large population of China it can be predicted that after the one child policy, there will be a large peak in the labour force. however, this large peak in 10-15 years will result in a large decline, bringing about a massive aging population that could threaten china’s ferocious growth and productivity. How is the Chinese government going to support this aging population and what are the reforms that have to be taken to ensure social welfare is given to those who need it?
But lets get one thing straight, reforms are DEFINITELY NOT going to guarantee 7% growth and prevent China from collapsing. We all know that due to China’s communist political system and mass production manufacturing objective, there has been a increased reliance on debt, investments from foreign parties, an undervalued currency and that the Chinese people have to suffer from low wages, poor living standards, lack of freedom of expression, lack of social welfare benefits and corruption from politically affiliated individuals and organizations. However these are the very factors that have allowed china to achieve turbocharged growth and to become the manufacturing giant of the world. Michael Pettis , author of ” Avoiding the fall” reinforces this idea as he states that China’s deleveraging initiative to reduce its reliance on debt and credit expansion will not increase the pace of growth but actually decrease it . Furthermore, the failure of banks to recognize misallocated investments through bad loans alludes to the fact that all of these optimistic Chinese GDP figures that we see are actually overstated. This fact has also been supported by VikramManishmarani, author of “BOOMBUSTOLOGY“, who states that China has been generating GDP without adding any economic value. Chinese developers backed by the government have been sprouting out new malls, suburban communities and exorbitant skyscrapers that are absolutely EMPTY! These aimless, squandering mercenaries have been building, demolishing and rebuilding an unused bridge just so that the consumption of new construction labour, cement and new raw materials will push up GDP figures. Pettis further reiterates that although these reforms have been discussed for the last 2 decades, nothing has been implemented as it clashes with nation’s political values and it will inevitably result in the power of the state and politically elite to be passed onto the everyday Chinese household. Some of the GDP figures are biased and its is a fact that hidden transfers from the household sector has been substantially inflating GDP figures. This lag of information to the western world makes us believe that China is growing at the speed of a cheetah ,when in reality, it may be otherwise. So is China really going as fast as it seems to be and what will be its future? If these reforms are implemented, surely growth will be slowed down .
Forbes columnist Gordon Chang, author of “The coming collapse of china ” also sides with the view that China is now going to go backwards. His theories state that China will soon undergo an revolution that will be brought on by their growth. Although the Chinese may face a lack of choice in their communist political party, Chang asserts that the people are starting to get the idea that they have choice, especially the higher tier workers that have gained from a rise in income. However, this new discovery of choice does not fit into the communist regime and this potent resistance is apparently too strong to allow China to be led to become a democratic nation. Chang again like the others reiterates that corruption by the politically elite is robbing the everyday man of his share . Macau ,with only a few of it casinos , has become the gambling centre of the world and the corrupted communist leaders. The people are led by their short term perspectives into making ill fated decisions that instead having a benign effect, only make China’s economy more unstable. Mass amounts of money invested by leaders into the economy have only postponed the problem but chang asserts that in the future, when China has to deal with this problem it will be too late. although his predictions may be inaccurate as we are currently in 2014 with no Chinese collapse, Chang expresses that the future social disintegration of Chinese society may be the fall of China.
Last but not the least, lets not forget the export sector. Due to the detrimental Eurozone crisis and USA’s debt overload, much of demand for China’s exports have fallen and we could see this as a flaw of China for relying to much on the European nations, thus making itself susceptible to the shocks that comes along with a collaborated collapse. Thus it seems that the export surplus is not really going anywhere and that China’s balance of trade may as well be shrinking. This just alludes that China’s is possibly going to lose out on some of its major revenue influxes.
Guys I know that its a lot to take in and there are obviously really strong arguments that supports China surpassing the US, but this information is the just start to the revelations of how China is entering a super cycle and that it may be overheating its economy and is on the brink of an inevitable fall that will occur in the foreseeable future. Although it seems that reforms may be a way to prevent this mess, the consequences of this restructuring may not only be felt by China but also by the rest of the world , the nations which are China’s suppliers and investors. Whatever the case, it is increasing likely that China will not surpass the US of A but may instead slow down considerably. There are a lot of links below that explain this dilemma better than I do but I absolutely recommend that you all check out the videos below, they are really insightful. Peace.
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