China’s Economic Growth: Causes, Pros, and Cons

China is a country known for many things, but it is famous for its huge economy and population. Its economy has enjoyed explosive growth over the past several years, making it the largest in the world. Limited capitalism and command economy were combined to propel it to the successful position it is now in. Spending of the government has also been a major driver of the rocketing numbers. Like in most other countries, the economy in China is also measured by its gross domestic product. By studying China’s numbers over the decades, we have learned that this country only aims for the heights, and the latest records suggest that it grew by almost 8% in 2019. Let us take a closer look at China’s economy to understand the causes, pros, and cons of the growth.

The Numbers

Over the past decade, China has made many incredible achievements, and this led to the development of the economic stability of the country. Despite the multiple feats, the growth has become slower since 2010:

  • 2010- 10.6%
  • 2011- 9.6%
  • 2012- 7.9%
  • 2013- 7.8%
  • 2014- 7.4%
  • 2015- 7%
  • 2016- 6.8%
  • 2017- 6.9%
  • 2018- 6.8%
  • 2019- 6.1%
  • 2020- 5.9%

Causes for the Growth

It was the massive government spending that fueled China’s spectacular growth over the past decade. Strategically important companies are owned by the government to gain a better position in the business. PetroChina, the China National Offshore Oil Corporation, and Sinopec are three such big energy companies that dominate their industry. High-priority projects were bagged by these companies because of government ownership. Technology is shared by other countries to help China compensate for its lack of resources. The knowledge gained from these countries is then used to replicate the same products and services in China. Management of the prices of exports to the United States falls under the control of the People’s Bank of China. When the country has the power to manage its exchange rates, the economy naturally gains an edge.

Advantages

Over the past three decades, the economy has grown exponentially, causing a reduction in poverty. According to the latest reports, only 3.3% of the population lives below the poverty line. As the country tailors its products to Chinese tastes, the world also gets exposed to them. With the increasing riches of the country, the consumption rates also keep rising. China has grown to have become the biggest producer of steel and aluminum. The tech companies in the country have also become the market leaders, and Huawei is on top of this list. Lenovo and Xiamoi are now popular all over the world for their personal computers and smartphones.

Disadvantages

A total debt-to-GDP ratio of 317% was created by government spending. These numbers were recorded in early 2020, and the country has only faced the worst since then due to the pandemic. An asset bubble has also been generated due to consumer debt. All of this has led to an increased urban housing price and inflation.

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