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Observing China’s economy in the recent time, it is safe to say that it firmly stands within the scope of global rivalry. While the rest of the world was overflowing with a wave of concerns how to overcome crisis and rehabilitate the lost positions, annual rate of GDP in China was implacably growing. And even now China continues making surprises.
As it turned out, in 2009 China
s vast foreign exchange reserves sharply jumped by 23%, what amounts to $2.4tn (£1.4tn), however all the efforts were aimed at the world's largest fiscal expansionary actions package that is going to help to escape global downfall. Even during the Great Crash China was hardly withholding its advancement and now it is trying to let Japan, whose economy is the second-largest in the world, through.
Though, this shiny sky is under threat of being covered with dark clouds. And one of those thunderclouds, whose thunder will be heard everywhere, is a situation in the stock market.
Mechanism, which underlies the problem, consists in the following: in order to prevent the currency, protected by capital controls, from mass outflow from the country, domestic investors were restricted by a difficulty of sending surplus funds abroad. In such a way, banks increase lending and cheap cash raise asset prices. That is why according to the data, performed by the People
s Bank of China, bank lending in December appeared to be 95% more than a year ago.
The experts have made a conclusion that that the most formidable foe of Chinese economy is ample liquidity and capital controls. And if earlier they helped to maintain financial stability, now turned to a threat. Raise of interest rates, uphold by the state council, restriction of investors in choices, higher inflation are also the factors leading to an affluence of common stock, property and repackaged loans.
Mark Williams, senior China economist at consultancy Capital Economics, have commented the actions of country’s authorities as follows: "They
ve got very scared that they can
t control it". Nevertheless, they have taken a few measures, including increasing banks' reserve requirements.
Economists have to admit that the problems are circular. There is a need to tackle the inflation and while the authorities are going to raise interest rates by the end of this year, to keep it under control, unwanted influx of foreign funds can be attracted due to low rates in western economies. "These problems are big, they
re real," says Gerard Lyons, the chief economist at Standard Chartered, who keep an eye on China’s concerns.
All these assumptions can prove false, but still China’s prosperity can’t become steady. And the reason is political obstacles on its way.
It is impossible to deny that the Beijing is making a great advance in economic sphere and such growth is perfectly seen to the rest of the world. Meanwhile, the question of business ethics builds up with the same tendencies. China
s trading relationships with the US and Europe have gained sharp edges.
European economists believe that inflation in China will not appear uncontrolled, but in spite of all positive consequences to millions of average people its increasing tendency will bring to political confrontation.
Now, the major charge to the address of China from congressmen in those states of US, called rust-belt, is currency manipulation. That means China have artificially fixed the yuan at low exchange rate against the dollar that results in huge benefits in China’s exports, which almost blow up. So that, the country can easily occupy leading economic positions. From the point of view of China’s rivals all this can be named as stealing of market share, primary from the traditional manufacturers of Germany and Japan. These countries are desperate to recover and gain lost positions in a market.
Such conditions have made international community provoke a series of protective measures, e.g. US influenced World Trade Organisation rules to throw off tariffs on Chinese tyres, paper and steel products, the EU has done the same to exports of aluminum wheels and steel products. So, Beijing politics in respect to yuan dominance extraordinary reflects at economic health of Japan and eurozone.
However, to throw down own currency is not the right way to stabilize situation. That is absolutely clear. Studying the problem in depth it can be seen that such enormous growth was caused by the fact that Chinese consumers save around 35% of their income. Weak demand forces the government to keep exports rushing ahead. These measures are necessary to protect oneself from the social and political crisis that will definitely arise if the fast economic growth will be slowed.
To solve this problem were proposed several decisions. Asian specialists consider the use of domestic policy is the best way to improve weak consumer demand. And the main idea of the Chinese authorities lays in improvement of social life in order people do not hide their income for a rainy day.
Development of social safety net will teach people not to afraid for tomorrow and spend their savings for the desired things today without any fears.
This approach was supported by the experts who agree that it will help to lift consumer spending, so the country can continue expanding without overheating. Qu Hongbin, HSBC
s China economist, announce the following: "We believe the jump in government spending on the social safety net, combined with surging consumer credit, will encourage consumers to loosen their purse-strings and lower their savings rate by five percentage points over the next three years".
Still, the world should admit that nowadays they have to take into consideration all the business processes in China, because its influence into global politics and economy can’t be contested.
Observing China
s economy in the recent time, it is safe to say that it firmly stands within the scope of global rivalry. While the rest of the world was overflowing with a wave of concerns how to overcome crisis and rehabilitate the lost positions, annual rate of GDP in China was implacably growing. And even now China continues making surprises.
As it turned out, in 2009 China
s vast foreign exchange reserves sharply jumped by 23%, what amounts to $2.4tn (£1.4tn), however all the efforts were aimed at the world
s largest fiscal expansionary actions package that is going to help to escape global downfall. Even during the Great Crash China was hardly withholding its advancement and now it is trying to let Japan, whose economy is the second-largest in the world, through.
Though, this shiny sky is under threat of being covered with dark clouds. And one of those thunderclouds, whose thunder will be heard everywhere, is a situation in the stock market.
Mechanism, which underlies the problem, consists in the following: in order to prevent the currency, protected by capital controls, from mass outflow from the country, domestic investors were restricted by a difficulty of sending surplus funds abroad. In such a way, banks increase lending and cheap cash raise asset prices. That is why according to the data, performed by the People
s Bank of China, bank lending in December appeared to be 95% more than a year ago.
The experts have made a conclusion that that the most formidable foe of Chinese economy is ample liquidity and capital controls. And if earlier they helped to maintain financial stability, now turned to a threat. Raise of interest rates, uphold by the state council, restriction of investors in choices, higher inflation are also the factors leading to an affluence of common stock, property and repackaged loans.
Mark Williams, senior China economist at consultancy Capital Economics, have commented the actions of country
s authorities as follows: "They
ve got very scared that they can
t control it". Nevertheless, they have taken a few measures, including increasing banks' reserve requirements.
Economists have to admit that the problems are circular. There is a need to tackle the inflation and while the authorities are going to raise interest rates by the end of this year, to keep it under control, unwanted influx of foreign funds can be attracted due to low rates in western economies. "These problems are big, they
re real," says Gerard Lyons, the chief economist at Standard Chartered, who keep an eye on China
s concerns.
All these assumptions can prove false, but still China
s prosperity can
t become steady. And the reason is political obstacles on its way.
It is impossible to deny that the Beijing is making a great advance in economic sphere and such growth is perfectly seen to the rest of the world. Meanwhile, the question of business ethics builds up with the same tendencies. China
s trading relationships with the US and Europe have gained sharp edges.
European economists believe that inflation in China will not appear uncontrolled, but in spite of all positive consequences to millions of average people its increasing tendency will bring to political confrontation.
Now, the major charge to the address of China from congressmen in those states of US, called rust-belt, is currency manipulation. That means China have artificially fixed the yuan at low exchange rate against the dollar that results in huge benefits in China
s exports, which almost blow up. So that, the country can easily occupy leading economic positions. From the point of view of China
s rivals all this can be named as stealing of market share, primary from the traditional manufacturers of Germany and Japan. These countries are desperate to recover and gain lost positions in a market.
Such conditions have made international community provoke a series of protective measures, e.g. US influenced World Trade Organisation rules to throw off tariffs on Chinese tyres, paper and steel products, the EU has done the same to exports of aluminum wheels and steel products. So, Beijing politics in respect to yuan dominance extraordinary reflects at economic health of Japan and eurozone.
However, to throw down own currency is not the right way to stabilize situation. That is absolutely clear. Studying the problem in depth it can be seen that such enormous growth was caused by the fact that Chinese consumers save around 35% of their income. Weak demand forces the government to keep exports rushing ahead. These measures are necessary to protect oneself from the social and political crisis that will definitely arise if the fast economic growth will be slowed.
To solve this problem were proposed several decisions. Asian specialists consider the use of domestic policy is the best way to improve weak consumer demand. And the main idea of the Chinese authorities lays in improvement of social life in order people do not hide their income for a rainy day.
Development of social safety net will teach people not to afraid for tomorrow and spend their savings for the desired things today without any fears.
This approach was supported by the experts who agree that it will help to lift consumer spending, so the country can continue expanding without overheating. Qu Hongbin, HSBC
s China economist, announce the following: "We believe the jump in government spending on the social safety net, combined with surging consumer credit, will encourage consumers to loosen their purse-strings and lower their savings rate by five percentage points over the next three years".
Still, the world should admit that nowadays they have to take into consideration all the business processes in China, because its influence into global politics and economy can
t be contested.
