Although the growth of China’s economy is slowing, Beijing’s influence in Asia and beyond is growing. But China is facing challenges both internally and externally, that could make it difficult to leverage the Middle Kingdom’s rising influence.
The Middle Kingdom’s economy is faltering after decades of solid double-digit growth. Trade logistics policies and regional initiatives are attempts by the central government to attract more investments, boost exports and take Asia region leadership. In August, the Ministry of Commerce of the People’s Republic of China (PRC) announced setting up seven new free trade zones (FTZ) after Shanghai and three other pilot FTZs started in 2013 and 2015, respectively. There is also more focus on reducing logistics costs for enterprise competitiveness. Regional initiatives are based on the Asia Infrastructure Investment Bank (AIIB) and the Regional Comprehensive Economic Partnership (RCEP) for trade.
The Magic Number
The PRC’s economy is expanding in the 6% range as measured by gross domestic product (GDP) for this year and forecasted for next year, which is the slowest rate in 25 years. This rate needs to stay at 6.5% in order to reach the goal of doubling per capita income by 2020, avoid social unrest from layoffs and create jobs. However, as a nation of savers, Chinese total household wealth rose $6.3 trillion to $23 trillion over the past 15 years, a gain of 265%, and on an average 9.4% annual rate over the next five years will reach $40 trillion by 2020. But the United States still remains the world leader at $86 trillion in total household wealth.
The economy managed to sidestep the 2008 global financial crisis brought on by the United States’ mortgage crisis by adding its own massive debt and real-estate speculation. At present, China has $30 trillion of debt for a $10 trillion economy, which grew from 150% of GDP in 2008 to almost 300%, a Barron’s report stated in November. Economists indicate that this debt could lead to another global financial and economic crisis.
In addition, the Chinese economy is faced with U.S. trade protection by higher tariffs considered during the campaign by now president-elect Donald J. Trump. Voters in the U.S.A. expressed their fear of more job losses from globalization and Chinese dumping of low cost goods. After the November election, the currency markets are showing a stronger U.S. dollar and a weaker Chinese yuan currency of 6.88 to the dollar, which could cause more Chinese exports or possible trade wars. In fact, globalization of merchandise goods, services and people that began in the 1980s during the Reagan administration may be at a pause or in a long-term downward trend. The World Trade Organization (WTO) recent report stated average global trade flows grew 10% a year from 1949 to 2008, but dropped to 1.3% from 2009-2015.
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