Chinese Economy Deals with Major Challenges
China is the second largest economy in the world in terms of nominal GDP and the largest economy in the world in terms of purchasing power parity. China has been the growth story of the last few decades with the GDP growth averaging at 10% since 1980s to 2010. But over the last few years China has been experiencing a slowdown in growth due to many internal and external factors. What happens in China is very important for the global economy as it is one of the biggest manufacturing hubs of the world and a major trading partner for countries all over the world. The following are some of the challenges the Chinese economy is currently dealing with in 2014:
Challenges for the Chinese Economy
• There has been a slowdown in the Chinese economy over the last few years and certainly so over the last few months. This makes the Chinese economy less attractive to the global economy and importantly to investors.
• Inwards FDI investment has dropped in China in 2014 and another important aspect of the Chinese economy is that outbound investment has picked up. This means that Chinese companies are looking to invest all over the world now rather than just in the Chinese domestic economy. While it is good for the overall image of the Chinese economic story, investment is leaving the domestic economy.
• There has been a prolonged correction in the property market in China. The property boom has played a major role in the Chinese economy.
• China is looking to become a more consumption based economy rather than an investment driven one over the next few years. Also a general slowdown in growth is expected in China over the short term future at the least.
• The wage rate increase in China also means companies may be looking at other destinations to where labor costs and then in turn the manufacturing costs are lesser and more competitive than China.
• China has cracked down on corruption and also introduced stronger environmental laws. Though these are positive steps in the long run for China, its immediate negative economic impact is visible in China.
Even the most conservative estimates suggest that the Chinese growth is expected to slowdown in the next few years. Impact of this slowdown will be felt in the global economy. Countries that have major trade relations with China and are dependent on China for their exports and imports will definitely feel the effects of the slowdown in the near future.