Risky aspects of the economic growth of China - Essay Example

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China’s economic meltdown is predicted by various economics researchers both within China and across the world. The corporate debt in China has increased from 108 per cent to 122 per cent in the one year from 2011 to 2012…
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Download file to see previous pages The corporate debt in China has increased from 108 per cent to 122 per cent in the one year from 2011 to 2012, and has achieved its highest level in the last 15 years (Roberts). As a result of this, China has become the most debt-laden country in the world. Andrew Batson, the GK Dragonomics Research Director comments on the effect of debt crisis on companies operating in China in these words, “Companies have seen their business slowing down and revenues were not what they had expected. They have bridged the gap by taking on more debt” (Batson cited in Roberts). A researcher from the State Council’s National Development and Research Center, Li Zuojun made a speech on 17 September 2011. This speech made at the Changsha Alumni Organization of Huazhong University of Science and Technology’s internal meeting spread virally over the Internet. A post over the largest social media website of China Weibo got forwarded over 9000 times (Zitan). Mainland media portals like Sina and Sohu also widely reported this information. Li Zuojun noted that banks, local governments, and small and medium-sized companies in China are undergoing bankruptcies that serve as the signs of economic crisis nationwide. In his speech, Li presented four reasons for predicting China as the next stop for financial crisis. Those reasons are economic, hot money, political, and cycles (Zitan). Risky aspects of the economic growth of China Economic The two main causes of the possibility of occurrence of financial crisis in China are the worsening local debt crises and the bursting bubble of real estate. According to Li, the overall economic downturn in China has exposed the small and medium sized companies to financial challenges that have played an important role in reducing the commercial and industrial tax revenues. Local governments in China have suffered from the reduction of revenues because of the depression in the industry of real estate. Local governments in China have immense are bearing the pressure of spending more over a whole range of items that include but are not limited to local infrastructure, national defense, social insurance policies, construction of houses, maintaining social stability, and improvement of the hydraulic structures. However, as the local debts are maturing, local governments are facing even more pressure and are being forced into bankruptcy. In the long run, this would cause the banks to declare bankruptcy and eventually, Chinese citizens would have to bear the burden of the debt. Therefore, Li foresees a full-blown economic crisis. Hot money Although China’s economy is slowing down, the US is undergoing an economic recovery at the same time. This is contributing to the flow of large sums of the international hot money out of China. As a result of this, economic implosion is taking place in China. Political New leaders in China have risen as a result of the leadership transition of the year 2013. The priorities of most of the new leaders are not addressing economic woes of China. It takes anywhere between three and five months for a new leader to expose the past problems after taking charge. Li estimated the mid of the year 2013 to be the most probable recognition of the economic collapse of China. “Following the economic bubble bursting, there will be a subsequent period of suffering. But for the new leaders, this is nothing bad, since they are not to blame for the suffering…With the economic bubble bursting, the new leadership can adopt practical approaches. … New political achievements will be gained more easily, since the starting point is comparatively low” ...Download file to see next pagesRead More
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