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mazingerz88's avatar

What are the reasons for China's great economic growth?

Asked by mazingerz88 (29202points) June 13th, 2011

On the surface, it’s seems easy to get impressed with China’s explosive economic growth. Everyone knows the Communist Party runs everything but they have merged their politics with Capitalism and the result is something Russia might envy.

Is China’s progress, if it continues to advance still using the system it has right now, be detrimental to America’s economic recovery and future? Americans buy stuff cheap made by cheaply paid Chinese workers. The Communist Party then leverages their huge cash surplus buying our bonds with money earned through exports in the US. What is wrong with this picture?

Is China’s boom America’s bust? If yes, what can be realistically done to level the playing field, sort of? : )

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17 Answers

woodcutter's avatar

No expert but I think it might have something to do with the way their govt manipulates their currency to make it work out in their favor.
The US needs to innovate and create jobs that can’t be exported to China because our manufacturing base is gone.

LuckyGuy's avatar

State supported theft of intellectual property and good old boy networks that put our oil companies to shame.

wundayatta's avatar

If America’s economy tanks, then China loses the biggest customer they have. Also, we might default on all those bonds they hold. China can not afford to let or cause the American economy to to get much worse, because they will be hurt badly.

Economic advancement is not a zero-sum game. It isn’t that if the Chinese economy booms, the American economy busts. It’s much more cooperative than that. We are all dependent on each other, and a rising economy in any part of the world provides fuel that causes other economies to rise, as well.

The reasons for China’s growth are several. One, the government has freed people to own private property and to keep the profits from their work. Two, there are what? Two or three billion people in China. Three, the rest of the world took advantage of the cheap stuff China provided.

Make no mistake—China is still a poor country with a low per capita income. There are billions of peasants out there, making subsistence wages.

Since poor countries are so poor, their economies can grow very quickly. They have so far to go. A person hardly need to work at all to double their income. So a boom is easy to maintain in a poor country. But once you get better off, it is much harder to grow as quickly. Every nation eventually settles down to a 3 or 4 percent growth rate, once their economies are at parity with the most advanced economies.

Except they never will be at parity. Fast as the developing nations can grow, they don’t have the resources to develop new technology nearly as quickly as the developed world. The more advanced you are, the faster you advance. So even with a booming economy, China will still fall behind. They got started too late.

We need to encourage Chinese growth because it is to our advantage. We get to keep on getting cheaper goods. And advancement anywhere in the world, helps push other economies higher. Economies may benefit from competition, but they benefit from cooperation even more.

Competition does help, so we need a good balance. I don’t care if this is in the classroom, or business or in large economies. The principle is still true. A rising tide raises all boats. We live together or we die separately.

CaptainHarley's avatar

Lending to America.

ETpro's avatar

Great question. The answer should be obvious. China has secretly adopted pure laissez-faire capitalism and eliminated all government regulation, letting individuals decide everything for themselves. No other method results in growth. I heard that over and overe again in tonight’s Republican debate.

mattbrowne's avatar

Widespread poverty and cheap labor.

Schroedes13's avatar

One of the reasons is the infrastructure that China is building right now. I believe when last checked, it was a massive percentage of it’s GDP. They have it at an unreasonable and unsustainable rate. In addition, much of the investment for this infrastructure building is coming from loans. Which puts the US in quite the fiscal situation when it realizes that it is being lent borrowed money.

I actually just had a pretty intense conversation with a friend from China who has lived there for the past 7 years. He is not happy with the situation at all.

mazingerz88's avatar

@Schroedes13 Just to clarify, China is using borrowed money to build infrastructure projects? All the while I was under the impression they have a huge surplus and taking advantage by buying oil entities and influence in other parts of the world plus improving their infrastructure at the same time.

Schroedes13's avatar

I’ve heard differently from a source that’s living there. I’ll try and find an article to corroborate this theory.

Schroedes13's avatar

@mazingerz88 here is one page I found that was kind of helpful.

http://www.datadiary.com.au/2011/06/17/five-charts-of-chinas-growth-conundrum/

I’m still continuing my search for more evidence though.

Schroedes13's avatar

From what I can remember from chatting with my friend is that China is racking up a massive debt, however, they are “hiding” by putting in in municipal budgets rather than at a national level. Also it’s not just the number of building projects, but the unsustainable pace at which their being done.

One example that my friend gave was for the city of Wuhan compared to NYC. He said there was a part of NYC that was planning on building an extension of their subway lines. This extension is supposed to be 2 miles in length and they estimated it will take two years. The city of Wuhan hopes to install an entire subway system in the same amount of time. Almost the entire project is being funded by private enterprises, lending money to municipal governments.

Schroedes13's avatar

While this shows one of the reasons for the economic growth, it also paints a very dreary picture well this infrastructure bubble pops. Not only for the countries that China invests in, but also from countries that is is getting massive amounts of exports from, such as Australia.

mazingerz88's avatar

@Schroedes13 Great posts, thanks! I can’t help but be cynical about this. The Chinese are shrewd in business, and I mean that as a complement. I can’t help thinking that they still know what they’re doing, building great infrastructure projects——and if any kind of bubble bursts, no one could really confiscate those infrastructures back. I mean, it would still be standing. And as long as they have the cheapest labor in the world, they can always recover from temporary economic turbulence. I’m sure it’s more complicated than that but guess that’s the bottomline for me.

Schroedes13's avatar

Ya it is true that it might not affect China is a horribly adverse way, but I’m more concerned of how it will affect the international market, especially countries they have invested heavily in, like the US, and countries that are importing materials to them, like Australia!

wundayatta's avatar

You can’t move homes from the US and yet the home mortgage bubble burst played a huge role in the current recession. So I don’t think the fact that it is infrastructure will keep a potential recession away.

incendiary_dan's avatar

You’re all wrong. The real reason is that a wizard did it.~

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