Daily Archives: January 21, 2015

Two Disparate Growths: USA and China

January 21,2015

Two Disparate Growths: USA and China

By Arturo P. Garcia

President Obama during his State of the Union Address Last January 20, 2015 never failed to allude to China’s economic growth and emergence as a world economic power in his own terms:

“Today, our businesses export more than ever, and exporters tend to pay their workers higher wages. But as we speak, China wants to write the rules for the world’s fastest-growing region. That would put our workers and businesses at a disadvantage. “

To some myopic western economic analysts “the economic growth of China in 2014 dropped to its lowest level since 1990 with the country just failing to reach the official annual growth target of 7.5 percent for the first time in 16 years.”

But for the Chinese economist, China’s growth is on target. Actually Chinese economist placed their target to a modest 5%. But the annual growth figures still outran the market expectations of about 7.2 percent.
According to them, the government economist m the success is because of their sound policy of” consumer drive consumption” than the former policy of “export” and “investments driven “ policy.
At the same time, the authorities are optimistic about the development of

China’s economy. The government says this level is enough to find jobs for the country’s enormous population.

“The economy maintains a steady growth in the ‘new normal’, with a positive trend of stable growth, structural optimization, the improvement of the quality of growth and social well-being”, said the Bureau’s spokesperson Ma Jiantang.

Western economists expect the slowdown of 2014 to result in an extended economic downturn. On Monday, the IMF forecast 6.8 percent growth for China in 2015, a number below the 7 percent target economists expect Beijing to set.

They say that the slowdown in China comes as the world economy shows vulnerability to regional economic changes. The eurozone risks plunging into a third recession in six years, and Abenomics ( named after Prime Minister Abe) has proved ineffective as Japan continues to remain in stagnation.

China’s economic slowdown is also triggered by domestic factors such as a drop in real estate prices, with a property sector accounting for 15 percent of GDP. Foreign economist point out to the empty building at Shenzen ” export processing zone” a former growth city which now an empty shell because of the real estate prices drop.

High total debt is a major drag on the expansion of China’s economy.The country’s overall borrowing is growing faster than the economy, with the debt to GDP ratio exceeding 250 percent. Falling energy prices, industrial overcapacity and a lack of demand can lead to the potential onset of a deflationary cycle.

China’s GDP growth at the end of 2014 was 7.4 percent, the country’s worst performance since the 3.8 percent growth in 1990, the year after the suppression of pro-democracy demonstrations in Beijing’s Tiananmen Square followed by Western sanctions.

The country’s GDP reached $10.4 trillion (63.646 trillion yuan) and is the lowest since 1998, the National Bureau of Statistics reported Tuesday.
If these issues aren’t resolved in time, China could find itself in a similar situation to Japan, and this is a reason why Beijing may need to tie more money into the system.

However, some experts believe the slowdown that is happening amid global stagnation is a natural thing, as China’s has experienced rapid growth for more than three decades in a row.

But with what Obama was saying he is still wary of China’s growth. Despite his bluster that,

“Tonight, after a breakthrough year for America, our economy is growing and creating jobs at the fastest pace since 1999. Our unemployment rate is now lower than it was before the financial crisis. More of our kids are graduating than ever before; more of our people are insured than ever before; we are as free from the grip of foreign oil as we’ve been in almost 30 years.”

Thus his call is very sound and clear, “ Why would we let that happen? We should write those rules. We should level the playing field. That’s why I’m asking both parties to give me trade promotion authority to protect American workers, with strong new trade deals from Asia to Europe that aren’t just free, but fair.”

The reality is he is wary that the sleeping giant that in the east that is the People’s Republic of China has risen and the United States has to contend with it. By hook or by crook.