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Factors Affecting Economic Growth in China

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Sample Essay on Factors Affecting Economic Growth in China

China has recently proved to be a force to reckon economically because of its growth. However, major concerns arise over the country’s economic sustainability. To keep this record, China has to implement reforms to allow a drop of the country’s GDP. In this essay, we shall discuss major factors affecting  economic growth of China, with a keen focus on bad loans, social reforms and a decline in spending among Chinese people.

The first issue that affects the economy is bad loans write-offs. The country’s bad loans have increased this year, hitting the highest mark since the economic depression of 2008. For example, non-performing loans rose from $4.7 billion during the last quarter of 2013 to $97.7 billion early this year. This increase accounts for 1.0%, the highest since 2011. Economists argue that if the bad loans are not tamed, the ratio could rise to 1.2% and drastically affect the country’s economy. This trend is alarming since it is expensive to service a debt of any nature. It also demonstrates the failure of the Chinese banking system to control loans, but focusing on the quality of assets. If the government implements measures to deal with shadow financing, this would mean borrowers find it difficult to repay their loans.

The risk of these loans is that if China risks to write-off all the debts, its GDP will sharply drop. While this is what every Chinese would want hear last, it would have good long lasting impact as the country will have a smaller debt to service. This means China would be headed for remarkable economic growth. Recent observations indicate that China is on the right path of writing off bad loans, with the amount of loans written off having increased and putting up measures to curb new defaults.

Another factor affecting China’s economy is the drop in spending on huge projects and the real estate industry. It is important to mention that China’s bad loans are closely related to huge projects as some investors use the bad loans to finance white elephant projects. This is common among companies that have a good rapport with the government. They take the advantage of their existing relationship to secure bad loans, which they never service in end.

It is up to the government to put up measures to stop giving incentives to its officials to fund large projects in the country. While these huge projects largely contribute to the country’s GDP, this is a short-term benefit with no long-term advantages for China. This equally applies to the booming real estate sector in China. Recently, prices have gone high because most investors feel secure to invest in real estate than in the stock market. There is need to tame housing bubble even though China expects massive demand for housing because of urbanization and movement of people to cities.

Another issue that affected China’s economic growth is its social reforms, including the one-child policy of 1979. Experts opine that implementing changes on the policy will have far-reaching long-term effects on the country’s economy. For example, there will be more labor mobility in the long-term and a less prosperous nation in the short-term. This will increase urbanization exponentially as more people will be shifting to the cities.

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Retrieved from:

http://www.project-syndicate.org/commentary/jun-zhang-examines-the-factors-affecting-china-s-potential-rate-of-gdp-growth

http://sirjournal.org/2013/03/17/driving-forces-of-economic-growth-in-china/

 

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