China and the world Economy

I like to start writing about China’s economy, and Iam sure it is something that economist all over are the world have discussed, and have made major statement,

The last 20 years have seen a dramatic transformation in China’s economy because 20 years ago, China was not a very big part of the world economy. China has just been admitted to the WTO and it is now the second largest economy in the world if you measure it by current price prices,  it is also the largest economy in the world if you measure it by purchasing parity powers, and therefore, of course it has a huge impact on the world economy.

If you take the projections of the IMF, in 2020, and 2021, China will account for an astonishing 60% of world economic growth. If you take the period out to 2025, China will account for slightly over than 30% of world economic growth compared to 10% of the United States.

  • What is the secret of the situation.

FIRSTLY:  Fundamentally it is a socialist economy, which means it combines the private sector with the state sector of the economy and as such this gives it a big advantage over the western economies which only rely on the private sector. As president Xhin Ping puts it, China is prepared to use both the visible hand and the invisible hand.

Also it invests more than 40% of its economy, which is almost twice that of the United States, and therefore, this together leads Into a rapid growth of the economy. Then the immediate advantages of course is the very rapid recovery from the pandemic. If we look at it for a moment, in China the virus is not active as there are only a few outbreaks here and there,  whereas in the West, the virus is spreading all the time it is still in a very dangerous situation. Therefore, our economies can’t be opened up rapidly, so these things bring together significant power to China’s long term economic growth and the huge role it plays in the world.

SECONDLY: 1) China’s successfully dealt with the pandemic in 2020, 2) at present it is the main vehicle of growth in the world economy, 3) as such China has become very important in that context.

  • China’s has become a high income economy by World Bank standards,

China in 2020 achieved its own domestic goal of moderate prosperity, but for international comparisons, if we use World Bank standard, China is a high income economy as its’ GDP per capita income is slightly over $1,000, per month.

By that Criteria China will become a high income economy in either 2022 or 2023, and is going to transform the world economy, because its population  is 16% of the world population,  so China will therefore, more than double the number of people living in high income economies.

This means the big challenge of course is that the world economy will become much more complicated as people in developing countries are really only concerned having enough to eat and in the most extreme cases have decent housing.

Once you get to a high income economy, the proportion of the economy which is spent on food or even on housing will fall, while leisure is playing a bigger role where people have much more complicated needs, cultural needs, need for travel. In terms of the number of tourists going out CHINA will become the biggest tourist economy in the world, education, culture as well as advanced health care will be in higher demand.

The whole world economy will become much more complicated and  that’s the fundamental challenge in this situation, additionally the world is entering into a very critical period on climate change.

Last year President Xie Jing Ping’s announced China’s targets for climate change which  was very widely publicized internationally. Fortunately there’s now a new period of discussion about international climate change as the Biden administration is much more sensible than was the Trump administration. So all is returning to the Paris Climate Change Agreements. This is bound to lead to a discussion between China and the United States, as the world’s two biggest economies, on what to do about it.

This is a very serious discussion because the question of climate change must be solved in the next five years as we can’t wait 10 or 20 years. So this is another new element in the situation.

According to the country’s National Bureau of Statistic, Compared to the same quarter in 2020,  China’s economy grew a record 18.3% In the first quarter of 2021, it’s the biggest jump in GDP since China started keeping quarterly records in 1992.

The figure, however, is not totally accurate, as the surge in growth comes off a contraction in the first quarter of last year when the economy shrank enormously during the height of the COVID-19 outbreak. Analysts say GDP growth nevertheless suggests that China continues to gain economic momentum.

Regardless of that 18.3% this is very impressive and China seems to leave everyone else behind.

China isn’t going to keep up an 18% growth in every quarter this year but even so it’s expected to still see its economy grow by about 8.4%. That would really be one of the best growth rates in the world for 2021. China is recovering much quicker than the rest of the world partly because they’ve really controlled the virus and they’ve been able to reopen much quicker.

This will ultimately benefit the rest of the world as a lot of companies in Europe, that have reported  earnings for the first three months of the year, indicated that China is their best market right now and that’s strength of the Chinese economy is helping a lot of European companies and economies in the world.

As China’s economic importance is accelerating, it’s becoming more and more focused on building its domestic markets, both in consumption and innovation.

Last year, China filed nearly 69,000 patents, with the World Intellectual Intellectual Property Organization, that’s a rise of 16%. The United States had just about 59,002 applications growth of only 3%, while in Germany it actually fell 3.7% to just over 18,600

As the Chinese economy expands industries like Germany’s auto sector are becoming increasingly dependent on China, 41% of Volkswagen sales comes from China.

China makes up about a third of BMWs overall sales and Daimler Benz sells 29% of its vehicles in China.

The US however remains Germany’s biggest trading partner, last year Germany sold 104 billion euros worth of goods and services that however is a 12.5% decline compared to 2019 againLargely because of the pandemic. China hoewever is not far behind as Germany exported nearly 96 billion euros in goods to China, more or less unchanged pre-pandemic.

Now those are a lot of facts and figures and we certainly need somebody to put all of that for us into perspective which I am trying to do here ?.

Obviously, due to the pandemic restrictions, China’s is increasingly looking into building its domestic market. Is that good or bad news for foreign companies? In some ways it does offer opportunities for foreign companies as we’ve seen with trade and China is basically outpacing everybody else when it comes to filing new patents.

What’s does that mean? It this is very interesting, China is definitely pushing innovation. There is however one thing falling short and we’ve seen that with the trade war, for example microchips, once America says that you can’t have our microchips, China will try to make up that kind of shortfall and will to try to advance on it in other areas as well. So this trade war on tochnology will be short lived.

German companies, particularly, will be looking for cooperation on innovation that also means technology transfer.

A few interesting years are on the horizon. What will Indonesia do?

Posted in Uncategorized.