The economic crisis in China

The world economy develops in the same way as the economic complexes of the countries develop, what it includes. It's natural that they are connected with each other, and when something happens in one state, then it affects others too. The locomotive of the world economy today is called China, but some negative trends that are or are beginning to manifest gradually, deprive it of this title. The country has long not pleased economists with double-digit rates of growth, and in this article we will understand why it happened, what this led to and what the consequences will be if the crisis of the Chinese economy occurs.

Current state of China's economy

Despite the table of contents of the article, the level of GDP growth in China is the largest in the world. At the same time, the GDP per capita is twice lower than in the Russian Federation, which to a large extent determines the economic migration of Chinese to Siberia.

In China, a significant number of factories and production facilities of the world are concentrated, which made it possible to turn it into a country with a high level of urbanization. The transfer of production was largely facilitated by low wages and a number of other objective reasons, among which the ban on the export of a number of raw materials, which is irreplaceable for electronics (rare earth elements). But with all the gigantic volumes, only 28% of all manufactured products go to the domestic market. Everything else goes for export. We should not discount the fact that the command and administrative management system prevails in the country, although it has certain market properties.

How the economy of China developed

The story of negative trends will be incomplete without mentioning how the economy developed. The foundations of modern economy were laid in the middle of the last century, when the Soviet Union actively helped communist China. Over time, when the relationship between them deteriorated, the first tried to go their own way, but because of the failures decided to rely on foreign technology. A lot of them were obtained illegally - through thefts, others were redeemed for a certain amount. The third production was located on the territory of China, and over time it began to produce exactly such "own" developments.

At the end of the 1980s, a crisis broke out in the country, which could be overcome by Deng Xiaoping. From that time until today, China is developing, having received the title of "locomotive of the economy", despite the approaching systemic crisis of the country. So what is the current economic crisis in China?

What are the causes of the emergence of negative economic phenomena?

First of all, it is necessary to note who owns the power. The fact is that the country and its economy are ruled by officials whose knowledge is very modest. Therefore, the necessary solutions come with a certain delay. Also, it should be noted and a significant excess of the amount of exported products over the consumed, which leads to a certain intra-state instability.

Mention should also be made of the situation with the management personnel of enterprises. The fact is that under the existing regime, non-fulfillment of planned tasks is not something commendable, so many managers overestimate the opportunities and effectiveness at times or even dozens of times.

Is the crisis a crisis?

Despite the above-described trends, one should seriously consider whether it is possible to call what is happening in the Chinese economy a crisis. The best word that describes what is happening is stagnation. It denotes an economy whose growth rate is slowing down with accompanying results. Also, stagnation is often called a harbinger of the crisis, but it is still far away.

Construction sector of the economy

It would be superfluous to go over the main sectors that create problems for modern China or can create in the near future. One of such areas of potential danger is construction. Of course, the population of China is enormous and all must be provided with housing. But often it is built in such places that there are very few people who want to move there. This leads to the emergence of empty ghost cities. Despite the obvious reserves, the construction continues on a significant scale and at a rapid pace, because it supports the loaded metallurgical industry, the enterprise for the production of concrete and many other building materials, which ensures economic growth. If in the construction sector to restore order and stop non-stop construction, then, according to some estimates, China's economy growth will fall to the minimum values.

Export of Chinese products

As already mentioned above, only 28% of the products produced in China are consumed by the inhabitants of the country, and everything else is exported. This situation makes the state too dependent on the state of the world economy and individual countries, those in which exports are taking place. Of course, in the case of a global crisis, the economy will not collapse, since other economic actors have no reserves to replace the produced products, and will have to continue to purchase. But with due cooperation and several years of hard work of the countries-consumers of export, they can create an adequate substitute. Then China can fall into an economic hole, get out of which it will be very difficult.

The value of domestic production on all produced

A special attention deserves consideration of the volume of consumption in the country, because this indicator provides a certain stability and self-sufficiency of the economy. The fact is that domestic consumption is more stable relative to the foreign consumer, because local customers can not simultaneously change the supplier. Also, if the amount of domestic consumption was greater, it would mean that the inhabitants of the country itself are richer, which, in turn, contributed to greater stability of the system and lessening the possibility of a crisis situation in the country. The Chinese leadership has been concerned about this indicator in recent years and is pursuing a certain policy, but it is too early to judge its effectiveness.

Stock and financial markets of China

Perhaps this section of the article will be the largest. The impending financial crisis in China has a number of its manifestations, which render its negation useless. Initially, we should talk about a credit problem, which every year worries economists more and more. The fact is that in China there is a huge debt of domestic consumption. So, the loans given to the Chinese managed to achieve double the size of the country's gross product. In such cases, this inevitably leads to a significant number of so-called "bad" loans, which will be hard to return or not to be paid at all. In other words, in such a large economy as the Chinese one, a huge credit bubble has been created, which according to some information can lead to a collapse comparable to the 2008 crisis , and to cause a banking crisis in China and then the world.

And a few words about the stock market. In the second and third quarter, everyone heard about the economic problems of the stock market, which fell out as a test for the country. Its significant problem is that it is in a state of suspension between state control and a free market. Also among the causes of discontent, which were voiced at that time, one should mention the closedness of information about companies, as well as the inability to verify the provided data for compliance with their reality. The stock crisis in China has a small scale of manifestation due to the fact that the stock exchange is small. What would have happened if it was the size of a New York Stock Exchange, even think terrible, because this could potentially cause the collapse of exchanges of other countries on the basis of the domino.

General economic life of the country

In general, China is prepared for economic decline, it is still impossible. Despite a lot of negative trends and structural problems, the economic component of this country still continues to be the fastest growing one. Also, one should not discount significant foreign exchange reserves, along with attempts to organize large interstate mechanisms, such as an Asian bank. We can only observe the decisions of the Chinese government and, in convenient cases, benefit for ourselves, noting the real causes of the crisis in China, so as not to repeat them ourselves.