Academic journal article Indian Journal of Economics and Business

Decoding the Chinese Rebalancing Urge

Academic journal article Indian Journal of Economics and Business

Decoding the Chinese Rebalancing Urge

Article excerpt

Abstract

The paper offers no-nonsense and piercing insights into plethora of issues, which forms the moral fiber and intent of the 12th Five Year Plan policy draft ranging from Renminbi appreciation and liberalization, China's perception on Renminbi revaluation, rise of dim-sum bonds, offshore deposit of Renminbi, the boosting overseas direct investments, reforming residence registration system (Hukou), dangers of slipping into middle-income trap, detailed analysis on financing of infrastructure in Sub-Saharan Africa with the nature and intent of investments. Subsequently, the paper demystifies unconfirmed and unverified notions apropos shrinking labor force, rising wage rates and the end of cheap labor in China.

I. INTRODUCTION TO CHINA'S ECONOMY

Catching up with China's frenzied economic advancement since the past three decades is akin to aiming at kissing a speed-train in motion. Its miraculous transformation from a centrally planned economy to a social market economy gained forward momentum not before the unforgettable decade starting the 1990s. China astonishingly emerged as a white swan powering regional and global growth between 1979 and 2010. According to Chinability, between 1979 and 2010 the country's GDP rocketed from Rmb404bn to Rmb39, 900bn a whopping growth by a factor of 99 times in 31 years. (1)

The growth and prosperity in China should be viewed in two phases. Phase one characterizes export-led, resource-burning, energy-intensive and pollution-laden model of growth which transformed China into a colossal manufacturing conglomerate. The phase generated immense of wealth and helped China attain world's largest foreign exchange reserves of over $3 trillion approximately 5 times the size of the International Monetary Fund (2). However, the world around China grew anxious with its rise. Many believed China made this miracle a possibility primarily by artificial devaluation of Renminbi, eye-brow raising fixed-asset investment (approximately 40% of GDP), cheaper wages, lower cost of utilities, tax incentives and lower yields on deposits thus suppressing consumer spending and channelizing the household savings in real-estate and banking sector to finance larger-than-life infrastructure projects (3). The deficit-laden OECD nations accused China for the onset of the notorious global economic imbalances, owing to its cheaper currency which, ballooned trade deficit of many rich nations. Most prominently, the United States of America. Out of the $600bn size of its cumulative external shortfall, around $250bn of multilateral trade gap is with China (4). As China grew stubborn on her stand of not revaluing Renminbi, the world looked at its rising global influence with uneasiness and apprehensiveness in galore.

[GRAPHIC OMITTED]

                                          2010      2011      2012

Position (m)                              1,312     1,320     1,328
GDP (US$ bn at market exchange rates)     5,878     6,821     8,090
GDP per head (US$ at market exchange      4,479     5,166     6,092
  rates)
GDP(US$ bn at PPP)                       10,241    11,388    12,724
GDP per head (US$ at PPP)                 7,803     8,625     9,582
Household consumption (US$ bn)           2,050.4   2,498.8   2,995.9
Household consumption per head (US$)      1,560     1,890     2,260
Exports of goods & services (% change)    15.8       8.6       9.6
Imports of goods & services (% change)    14.0      10.0      10.5

                                          2013      2014      2015

Position (m)                              1,335     1,342     1,349
GDP (US$ bn at market exchange rates)     9,569    11,196    12,973
GDP per head (US$ at market exchange      7.166     8,341     9,618
  rates)
GDP(US$ bn at PPP)                       14,162    15,756    17,533
GDP per head (US$ at PPP)                10,606    11,738    12,999
Household consumption (US$ bn)           3,614. … 
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