The major challenges for China, Why the past successful export led growth model cannot continue - Term Paper Example

Over a period of three decades, China has established a market-based economy but, however, the establishment of market institutions remains unfinished (Naughton, 2007). The export-led growth was greatly assisted by channeling savings and labor into large scale physical and human labor investments. Further, the shift to markets from planning brought about efficiency in the allocation of resources while taking advantage of the industrial experience acquired during the socialist era. According to Norton (2007), the present economic period has exploited a long entrepreneurship and commercialization history both inside and outside the country, which has eased access to capital and savings.

With an emphasis on economy, this paper will discuss the major challenges that China is facing and the reasons why its past successes based on growth that was fueled by exports cannot continue. It will further suggest how the Chinese economy should further be transformed. The key concern facing China’s economy is the improbability of the continuation of the conditions that facilitated the 7% economic growth in the past 30 years, save for the slowly but steadily improving human capital (Garnaut & Song, 2005).

However, the improving human capital may be negated by the rapidly aging professionals that will put a strain on the government’s capacity of healthcare and pensions. . Although the changeover has resulted in improved standards of living, it has also led to higher economic risk and uncertainty. This is manifested by the worsening distribution of income, unemployment, unstable education, insufficient infrastructure and a badly structured health insurance framework (Zhang, 2008). The economy is in a state of imbalance because of overdependence on exports, with relatively low shares of GDP realized from domestic consumption in comparison to the status in majority of the developed countries.

This has led to a never-ending overcapacity, aggravating the trade imbalance between China and its significant partners in trade, the result of which has been recurrent apprehension in mutual relationships with trading partners and, more critically, the United States (Liu, 2007). From the economic point of view, China may be said to be a victim of its own success (Garnaut & Song, 2005). None of its trading partners is enjoying the exponential growth rates that China has experienced, and their imports from China cannot remain the same, or at least in a way that can lead China to continued stability.

Viewed in another way, the trading partners may maintain their level of imports, but, from the perspective of China, they would not sustain the growth rates they have seen in past years. After going through a period of humble monthly gains, the country was faced by unexpected drops in September in exports (Silk, 2013). This occurrence renewed the indications of weak points within the emerging markets that China has been trading with as significant partners. More importantly, it signals the restrictions of heavy dependence on more export growth to