Eye to the Future
What’s Next for China’s economy?
Grow Jobs, Reduce Inflation: In the immediate future, China’s overarching priority is to keep inflation and runaway prices under control while continuing to grow the economy at the quickest speed possible without overheating. The other priority is to create enough employment.
Encourage Domestic Consumption: With domestic consumption beginning to play a more important role in the economy, China will continue to grow as a consumer market, which is good news for U.S. and other producers. China should not be overly affected by any U.S. recession as long as China can continue to keep up domestic demand to make up for falling exports due to decreased U.S. demand.
Long Term Goals: In the long run, China is attempting to move away from a cheap labor, cheap material economy to one driven more by information, knowledge, technology, and efficiency.
Prospects for Long Term Growth: Although China has maintained an average annual growth rate of around 10% since the mid-1970s, not all economists believe that it can continue to grow at this rate for the next few decades. For one, the policies that enabled growth in the early stages are not sustainable. Furthermore, China has an aging population and thanks to its one child-policy in place since 1979 to alleviate overpopulation, in the next few decades, there will be fewer young adults to replace all the retiring workers. How much this will affect economic growth is difficult to say. In the end, how quickly and successfully China’s economy will grow will depend as much on whether and how China addresses its many domestic problems mentioned above, including reining in corruption.
What’s in store for the United States?
In the more immediate future, the low cost of goods that consumers in the U.S. and around the world have come to expect from China has likely bottomed out, and most economists are predicting that prices will rise. This will likely exacerbate the economic slowdown in the U.S. Recessions, unfortunately, tend to produce knee-jerk political reactions, such as aversion to world trade and protectionism. If protectionist measures are enacted, they will in the end only hurt the American economy. A more detailed look at what lies ahead for the U.S.-China economic relationship and what the U.S. should do, can be found in the “Trade” section.
How can America show leadership?
Over time, the two economies will become even more interdependent. The more coupled the two economies become, the more chances of friction. In an increasingly globalized world, however, disengagement is not really an option. The bottom line is that if and when China succeeds, the West and the United States will invariably lose some of the power it already has. The irony is that even for those who view the world as a zero sum game, neither country can afford for the other to be weak. The United States, still the world’s largest economy, can remain so for many years to come, but only if it exercises the leadership demanded of the position.
Take Care of Own Economic Problems: As mentioned above, the U.S. could boost its own economic standing in the long run by taking care of its current account deficit and some long overdue domestic problems, even if it means sacrificing some growth in the short run. This will give the U.S. more credibility when it asks China or any other country to do the same.
Integrate China: Despite the very real fears of American workers who have lost their jobs, the United States will benefit more from China having a strong economy, and should hence do everything it can to further integrate China into the global economy. Some economists have argued that the U.S. needs to reform the G-8 (group of highly industrialized states) to include China as the ninth member. Including China not only allows for the discussion of the impact of China’s currency, it’s global trade relationships and the environmental impact of China’s increasing demand for energy resources, but by according China the trust and respect due to an equal participant, the world’s leading countries can legitimately demand of China that it be a fully engaged, global partner.
1 David D. Hale and Lyric Hughes Hale, “Reconsidering Revaluation: The Wrong Approach to the U.S.-China Trade Imbalance,” Foreign Affairs, January/February 2008, http://www.foreignaffairs.org/20080101faessay87104/david-d-hale-lyric-hughes-hale/reconsidering-revaluation.html (accessed 1/2/08).