Stronger China Helps Balance the World Economy

According to a recent The Economist article, this year, for the first time, China is contributing more to global GDP growth (measured at market exchange rates) than the United States. China and other emerging economies have become powerful new engines to balance the world economy when America is facing a risk of recession.

When I was traveling in China, I could see there is a lot of optimism and confidence in people everywhere about China’s future. Although they are worried about their children’s education, social security, etc. in general, people believe China is going to get better. Even the economists don’t see many threats to cause China’s economy to collapse in the near future.

Interestingly enough, as the article indicates, “China is one of the few parts of the world without a housing bubble.” Although housing prices have increased several fold, the article says, “the ratio of house prices to average income has fallen by 25% in China since 1999.” This explains why some people I interviewed own more than one apartment, and some still want to buy more.

Here is another picture of a Chinese middle class family:

The article also discusses the other myths about China such as export-led growth and increased labor cost. There are indications that a growing middle class is driving domestic consumption, in spite of their high savings; and labor productivity has increased faster than the rise of average wages.

This is a photo of the neighborhood of my parents’ home. Five years ago, it was packed with bicycles. But now, it’s parked with cars.

The article goes on to say that China’s long term prospects are strong because its economic success has been based on high savings, openness to trade, good education and strong productivity. “As China has grown, it has come to matter much more to the rest of the world.” China is now a force for stabilizing the world economy and it’s good for the world.

11 thoughts on “Stronger China Helps Balance the World Economy

  1. The article is bunk. They need to take a close look at business practices and education. I have plenty of students who are not optimistic about the future and constantly worry about finding a decent job after they complete their masters’ degrees. As for housing, the majority of citizens in the cities cannot afford to buy a house. Those who can afford it usually purchase two or more so that they can rent them out and raise housing prices. The wealth gap is going to continue to grow and the workers will grow more disgruntled.

  2. Matthew,

    There is also a lot of optimism, but also a lot of anxiety too. Many middle class people are worrying about their children’s education, social security, etc. because they know the government is not going to take care them anymore. 80% of households in the cities own their homes – I believe this is the majority.

  3. helen – did you conduct your interviews, that you’d talked about before? i am so interested in reading them. thank you!

  4. Yes, Jessie, I have conducted the interviews – many interesting stories. I am now trying to speed up with my book (already got an offer from a publisher and expecting another one coming soon!).

  5. At the moment China is helping the world economic growth, yes. However, the Chinese economy is greatly depending on continued growth of export to fuel its economy. The domestic consumption levels can not be kept up if the factories have to close because the American or European economies are too weak to import anymore. China is very dependant on the global development elsewhere in the world.

    The problem with China’s capital markets is that they are not regulated like in the West. For example it is common for Chinese companies to invest all their earnings in the stock market and even borrow more money to place there. The stock market is fueling itself at the moment much like it did in the West right before the burst of the IT bubble in late 2000. China is yet to see a gigantic crash like the one in the West seven years ago but like all economists would tell you, it’s only a matter of time. When it does come in China, everyone will be affected because nearly everyone invests a lot in stocks.

    I disagree about the real estate. From what I heard from a professor on Chinese economics recently people are today on average spending 50 % of their disposable income paying mortage fees which is a good 25 % of how much they do in the West. This means that if the Chinese economy would slow down, if the interest rates would increase further there could be a huge crash on the real estate market as people are forced to sell off, especially those who own several apartments. The Chinese government realizes this problem but is not doing nearly enough to prevent a future crisis, today the interest rates compared to the inflation is negative which means borrowing money is actually profitable.

  6. great blog, I like your positive attitude, I don’t know if you live in China or not, but as the facebook pundits have pointed out China is doing well for itself and the world economy….but, however, in spite of….you can experience it all here from the very best to the worst, it is a work in progress…however, everything is a work in progress and it matters more what the direction the progress is going…me thinks, and China’s direction is going up.

    I believe that just as Britain ruled the 19th century and the US the 20th, so China could dominate the next 100 years. However, China currently remains a relatively poor country with per capita income only a fraction of that of developed countries.

    It will also have to overcome huge problems if it is to become a global superpower. These include weak institutions, a rickety old financial system, an inadequate legal system, environmental degradation and a huge army of unemployed migrant workers.

    However thats what makes it exciting here and why people like to discuss this topic… who knows what the future holds, but I have made my stake here and hope for the best…my business, family, and life are here, and so far I’m doing pretty good ;–)

  7. It could be strong, but a superpower i think not. Too many huge problems have come up and they have just put them to the side. Now the problems that should have been dealt with are back and worse, while new problems have come to face China. The problems are not being dealt with as they should be because Chinese people in power are too worried about how they can make money out of their position because it cost them alot of money to get into that position in the first place. China is so disorganzied and the people are so worried about themselves that these problems that are holding the country back will be looked at but not solved properly. Chinese solutions are like their buildings, made to look good for a short time until it is sold….then once sold just fall apart.

  8. One question…how can a country with 1.3 billion people that has been sustaining economic growth at breakneck pace for several years now…successfully, be disorganized…I mean I think I know what you mean, when you look at the daily life in China with traffic,people pushing and shoving, people fighting to get on buses, to us it seems disorganized, but have you ever heard of “Chaos” inside of chaos is structure and organization…you just don’t see it or understand…and neither do I…but I believe it is there.

    When I first came to Beijing I used to walk from the bus to my office about 1/4 of a mile on huge street downtown, the first week as I walked along bicycles were coming at me, hundreds of them…I did what came natural to me…started dodging them, they in turn started dodging me…it was a mess people flying in all directions, cursing, yelling etc.

    I told my wife…she laughed and told me don’t dodge them…they will dodge you, now when I walk in China I never dodge a bicycle, hundreds of them will just flow around me if I walk straight…took some time but I got used to it, there is organization in there, but I didn’t see it.

  9. Helen, can you list your criteria for what makes a Chinese family middle class? On average what is their annual wages and what do they spend on? If you are trying to define middle class in China by doing interviews and showing pictures and then using them as examples of the middle class then is that not an example of circular reasoning? Essentially you are arguing that the apartments must be owned by middle class Chinese because that is what the Chinese middle class is living in.

    Also, I don’t see how personal anecdotes and interviews will describe how the middle class in China behave in aggregate. So what if a family member buys a pair, or two pair, or a dozen pairs of shoes? Is that person assumed to be middle class because she bought an arbitrary number of shoes? Or is there a subjectively defined number of shoes which if purchased by an individual evinces evidence of middle class behavior? Or is it just that your family member likes to buy shoes? There are just too many logical fallacies that one can fall into when one depends on personal anecdotes and experience, especially because they are so subjective.

  10. Helen – my daughter lived in China for awhile a couple of years ago and found the Chinese middle class to be full of optimism and exceeding in ways that their parents had never dreamed of. Good piece.

  11. I am amazed you could bolster such a nation as China as it has, and is now exentuating further and tougher sanctions on my fellow Buddhists in Tibet as they have become mroe lenient over the past decade or so, but now things have suddenly grown far worse for them. I am a Buddhist leader, a Venerated leader recognized twice by the DALAI LAMA because of my years of humanitarian work. I was a torture survivro and starved repeatedly to death, a well as programmed and deprogrammed, taken away against my will in my adult life with armed guards due to extreme religious persecution, and IN THIS COUNTRY; AMERICA. China is a wonderful country and most of it’s people are very compassionate, but I don’t believe enough that it is above America in the realm of it’s technologies. This professor who is twice ordained in thew Buddhist faith, although a Catholic Christian, soon to die form end stage Leukemia, and a well known author all over the qorld, does not agree with you’re findings although it is a well done article with seemingly expiated proof, but as an author and activist, I failt o view the lighter side of this rather poignent and serious secret that pulsates beneath the surface of a ‘sunny’ disposition, and whee tyrannical fasciests preside in an avid manner.
    This survivor of seven years of inprisonment and torture with famine and starvation, as well as unspeakible atorocities which began as a child in America, refuses to justify or support this information you are so deperately attempting to bolster upon the American nation.
    THE MOST VENERABLE LAMA RIMPOCHE, HER HOLINESS
    MILKWEED L; AUGUSTINE, PROF. PH.D
    AUTHOR