China’s Economy

As China’s economy continues to blossom – a result of the changes that have taken place since the end of the Maoist era and subsequent birth of the Open Door policies in the 1970’s – it can be argued that many Chinese simply don’t have the tools to manage the widening wage gap, growing middle class and almost unrealistic wealth for their highest earners.

Throughout China, wealth and fair wages are sporadic and unevenly dispersed. The coastal and urban areas have done extremely well in the last 15 years, thanks in large part to increased foreign trade, while the poor rural and agricultural areas remain largely unchanged. Even in urban areas, the wage gap between skilled and unskilled workers continues to rise, with skills in short supply, such as engineering and managerial, sending wages for those positions skyrocketing.

The factors influencing China’s economical growth are numerous. Their 2001 commitment to the World Trade Organization to open up their services sector can certainly be credited for a substantial portion of that growth. Banks, insurance companies, asset management and telecommunications all saw competition and profits increase. The manufacturing sector, the largest industry in the country, continues to dominate on the global economy in textiles, apparel, shoes and toys.

As China’s foreign trade continues to increase, it is expected to overtake the United States in exports this year to become the second largest trading economy. In 2005 alone, China boasted an impressive $1.4 trillion in total foreign trade volume. But while this new wealth is being pumped into the Chinese economy, where is it going?

While the Chinese are notorious savers, with the highest savings rate in the world at a whopping 50%, the relatively new Chinese stock exchange is experiencing an unprecedented influx of well-meaning investors. The result is an over-inflated market that was destined for a disastrous dip. Last year, 2.7 million new investment accounts were registered – more than 3 times the amount registered in 2005. People began pulling their money out of savings and real estate investments to throw into the stock market, with a large portion of the action coming from day traders, who are looking for the great American dream through instant stock market wealth.

Unfortunately, the market couldn’t withstand the buying binge and on February 27, 2007, the market in Shanghai fell 8.8%. As China’s economy is expected to continue to grow at the rapid 10% per year it has seen for the past decade, the government has resolved to keep an eye on the fledgling stock market.