The Future of the Chinese Economy

Though China is still considered a developing country, consistent economic growth over the last 30 years bodes well for its government and citizens.

Often compared to the Japanese economy of the 1960’s, China appears on the verge of rapid and sustained growth that could well last the next two to three decades. Noted financial advisor and founder/director of the China Center for Economic Research at Peking University Justin Yifu Lin is optimistic about China’s economic future. He feels that China’s 7.8% GDP growth rate during the 1998-2002 deflation period, the highest growth rate in the world for that period, is a sign that China is managing its economic growth well. With measures and a plan for sustained growth in place, China could very well become one of the world’s leading economies.

After the implementation of the Open Door policies in 1978, China saw rapid growth in export, manufacturing and the service sectors. In fact, China’s 10% annual growth rate is exponentially higher than that of other developing economies such as India and Latin America.

However, there are several obstacles that could hinder China’s financial growth and cast a pall over an otherwise rosy picture. The wage gap between skilled and non-skilled workers is troubling, as a new middle class has emerged yet left many in poverty. China’s agricultural and rural workers, in particular, continue to struggle with rock bottom wages, poor living conditions and little hope of change in the foreseeable future.

The citizens of China are also voracious investors, saving more than any other country in the world. However, their interest in stocks and other like investments has left the market extremely liquid, which is worrisome to analysts. As evidenced by the drastic stock market plunge on February 27, 2007, China needs to rein in its developing stock market to remain competitive with the more mature European and American stock markets.

In the current international political climate, China must continue to take steps towards an open and democratic society. The world is watching the way that they treat their workers, manage their investments and develop infrastructure as indicators of their projected success in the world market. As more foreign investors choose to place their confidence in the Chinese market, the influx of foreign currency will fuel the economy’s steady march onwards and upwards. Sustaining that growth is a challenge that will require diligence and forward thinking on China’s part.