What issues will China face if it continues to grow? Does it show any pattern similar to what Solow suggested?

China has achieved hyper economic growth in the past three decades which is very spectacular (Lu, 2011). It has already 16 percent of the global gross domestic product and it is predicted that it will rise to 28 percent by 2030. Moreover, Yue (2008) said that the sustained rapid economic growth of China has confirmed the rising trend of China as a potential global power.

Chinese president Xi Jinping stated that his party would be central to the realization of the ‘China dream’. But the question arises that will China succeed in transforming the economic model that it has served well for the last 35 years.

The Chinese communist party adopted a blueprint for the future at its Plenum. The party has acknowledged the market as the definitive factor in determining the future shape of the economy of China. It also realized to provide new economic growth generators which are beyond the labor-intensive manufacturing and state investment for export. Moreover, it also embraced the need to grow new jobs in the service sector and lift domestic private consumption, especially in China’s exploding second-tier cities.

Chinese’s authorities have recognized that for the implementation of this model, it should admit the imperative of state-owned enterprise reform, proper access to capital markets and competitive neutrality for the private sector. Moreover, for driving the efficient allocation of the resources in the economy of China, this model requires deep reform in capital markets of both private and public.

However, if the model which is taken as a major reform task failed to implement, it will seriously weaken economic growth, employment, and average incomes growth which in turn reduce the contribution of the Chinese economy to global growth. Accordingly, the reduction in global growth rate results in weakened global investment, trade and capital market flows.

Solow model of economic growth is a long-run model that tries to describes why there are such vast growth differences and income disparities across the world. It explains the productive capacities of countries over time. There is some similarity pattern of this model with the economic growth of China. The Solow model assumes that there are certain factors that determine productive potentials such as the skill of the labor force, the value of capital stock, the efficiency of energy consumption and the level of the technology currently used in production. China is very high in the above-mentioned factors that determine productive potentials which is why China will continue to be the fundamental political and economic power in the long-term to the wider Asia-Pacific region and the world beyond.

References

Lu, D. (2011, Dec). Transition of China’s growth pattern. Frontiers of Economics in China, 6 (4).

Yue, J. (2008, Jul). Peaceful Rise of China: Myth or Reality? International Politics, 45 (4).

Today the economy of China is counted as the world largest economy. If we see the average annual growth rate for China since 1989 until 2018 then it is averaged of 9.61 percent. For the year of 2018, China has 6.7 percent of growth rate. The Chinese economy was based on a mixed economy where they follow both capitalism and command economy (Cannon, 2000). This has not only result the growth but a sustained growth. The poverty rate of China has significantly reduced. Standard of living and consumption or purchasing power of Chinese citizens), inflow of foreign currency via foreign direct investment, increase in industrialization and manufacturing of the nations had highly increased due to the growth in China. China is sprinting forward wholeheartedly to become world’s largest economy and overthrow the US from number one position. China is the largest exporter and second largest importer of goods in the world.

However, the growth of China has prevailed lots of problem regarding growing urbanization brought by extensive industrialization (Guell, 2015). The high state investment has created a debt related issues to China as a debt-to-GDP ratio is totaled at 260 percent. Along with that resources are depleted at the higher rate, increase in pollution level, a rise in income inequality, and issues of asset bubble started to hamper real estate industry.

The problems that China has to face if it continues to grow in future

There is no doubt that China has its significant growth in economy, with the growth they need to have balance on environmental cause also. The urbanization continues and possibly even accelerates, and industrialization continues to evolve towards the production of finished products, the scope, and dimensions of China’s environmental problems will increase and become more complex. Beijing, Urumqi, Lanzhou, Jinan, and Shijiazhuang are already in a list of highly polluted cities with this industrialization and urbanization. The immigration to urbanized cities resulting high cost on land and rent. China is focusing on urbanization extensively that would create debt problem to China as they are not generating any economic value or financial gain to the economy of the nation in future. And, the income disparity between the Chinese people will be further widening as some worker will receive massive remuneration while other have to satisfy with minimum hourly wages.

Neoclassical model of economic growth - China

Neoclassical model of economic growth was pioneered by Robert Solow of MIT which describes an economy in which a single homogeneous output is produced by two types of inputs capital and labor. The result as economists stress the need for capital deepening, which is the process by which the quantity of capital per worker increases over time (Guell, 2015). The situation of China we can predict as Solow model. In the long run the economy will enter a steady state in which capital deepening ceases, real wages stop growing, and capital returns and real interest rates are constant (Li, Liu & Rebelo, 1998). Thus, this result provides a significant lesson for the developing countries like China, that is, if they want to achieve higher living standards for its people they should make efforts to control population growth rate.

References

Cannon, D. T. (Ed.). (2000). China’s economic growth . Palgrave Macmillan.

Guell, Robert C. (2015). Issues in Economics Today , 7th edition- 2015 ISBN: 978-0078021817

Li, H., Liu, Z., & Rebelo, I. (1998). Testing the neoclassical theory of economic growth: evidence from Chinese provinces. Economics of Planning, 31 (2-3), 117-132.