The rapid growth in China and its major consequencesan analysis on the imbalances
2013-06-04 07:09:12TiagoAugustoGabrignaRosa
Tiago Augusto Gabrigna Rosa
【Abstract】The objective of this paper is to unveil the imbalances currently present in the Chinese economy and society that were generated from the fast growth experienced by the country since the beginning of the reforms in 1978 and got even more accentuated after the ascension to the WTO after 2001.The large inflow of investment and disparities of progress between rural and urban zones are definitely a decisive point to the government in order to provide effective policies to reduce growth and coordinate the shift from an export-led economy into a self sustainable economy pushed by consumption and uniform development.
【Key words】China；Imbalances；Growth
0.Introduction
Since the beginning of the economic reforms，China has evolved from an inefficient planned economy to a well stabilized hybrid system that has attracted to the country uncountable foreign investments and built a solid manufacturing structure that has pushed for years the economical growth via international trade. The ascension to the WTO in 2001，not only forced the country to adopt market-oriented policies to protect investors， but also permitted to China to access a huge know-how of practices arising from a better integration of processes brought by the exchange of information with foreign companies，providing a very competitive scenario aligned with abundant workforce and the rapid assimilation of new technologies.
As far as growth and development are distinct concepts， much needs to be clarified about the consistency of the Chinese model.On a conference marking the conclusion of the National Peoples Congress in 2007， Premier Wen Jiabao stated that Chinese economy was “unstable， unbalanced，uncoordinated and unsustainable”.In this context the objective of this paper is to briefly point the causes of the imbalances generated by the rapid growth of the Chinese economy. The first section will illustrate the main factors that contributed to the positive numbers reflected in the GDP.In the second section it shall be discussed how the same factors that pushed growth contributed to the present situation of imbalances.The third section will suggest mechanisms to overcome the disparities of development and also highlight the efforts of the government to achieve them，leading to the conclusion that will cement reflections about the future.
1.The Economic growth of China： the export-oriented model， migration， rapid urbanization and investments
With the establishment of the special economic zones in the east coast by 1980 and amplification of the benefit to another also coastal 14 cities in 1984 the inflows of foreign direct investment started to soar in China，triggering a first wave of urban construction and renewed urbanization at odds with long-standing public policy.
The secondary sector experienced a growth without precedents. The larger participation of the private initiative in the open coastal cities has led the areas into a real estate boom， a mechanism that has largely driven Chinas economic growth for the last 15 years.
Being attracted by the new possibilities of the urban zones，a massive flow of migrant workers has arrived to work in the manufacturing process and construction that started to spread all over. The workers wage that by the time was favorably low for foreign investors， reducing production costs and generating better competition abroad for the goods produced in China.The Chinese Yuan also played an important role in the external competition， since it is known that a weak currency boosts the internal gains obtained from trade. After the entrance of the country in the WTO by 2001， several policies adjusting the financial， legal and structural sectors have been made and companies kept progressing， injecting huge amounts of capital in the country and boosting the growth of the country led by exports as the exposed in the graph.
Figure 1 – Chinas GDP growth （annual %）
2003-2011
Source： World Bank Databank
According to Nobel Prize in Economic Sciences Amartya Sen （1983）， growth differs from economic development， which can be seen as a process of expanding the capabilities of people. Based in such concepts we can understand that besides the optimistic numbers shown in the last decade it is still not possible to classify it as fully development， since many spatial areas and economic and social sectors had an uneven way of growth.The concept of“l(fā)etting some people getting rich”first was definitely put on practice.
2.The imbalances caused by the rapid growth
As a result of the favorable development of the coastal zones brought by the economical opening， China started to witness major differences in the level of development from its spatial areas. To begin， the disparities between the urban and rural areas became very clear as the investments started to soar and be concentrated in key regions， as the Delta of the Yangtze River， the Bohai Economic Rim and the Pearl River Delta. The investments concentrated in such zones way much superior than the ones made in rural zones， specially because a great amount of it was provided by the private initiative that had its presence reaffirmed after the fiscal reforms of 1994 and legal reforms for foreign companies happened mostly in 2004 and 2005. The investments in construction， manufacturing and infrastructure mobilized a large number of migrant workers that were off to achieve better wage standards than the ones available from agricultural activities in rural areas. In 2012， it was estimated that China has around 262.61million migrant workers.The slower growth trend of rural zones meaningfully contributed for an unequal rise of salaries between the two zones as demonstrated in the following figure：
Figure 2–Income Disparity between rural and urban China from 1978 to 2009
Source： BBC apud National Bureau of Statistics of China
It is undeniable that the income of rural areas has also experienced gains and since 2010 the annual average growth is higher than the urban areas，but much still needs to be reached. The trade-led model also started to show some signs of instability brought by the crisis of 2008， forcing the government to create consumption plans in order to create some movement with the excessive capital destined to investments of the country.In 2012， the CIA World Factbook estimated Chinas investment to GDP ratio in 47.80%， number 2 in the world and investment is a decision of postponing consumption.
3.What has been done to overcome the difficulties generated by the imbalances
The awareness of the imbalances in China has been already highlighted by the communist party since 2004； however， besides the necessity of rebalancing the economy as a whole， few has been achieved and the basic priorities of the growth promoted by a highly globalized scenario have prevailed. The new government from president Xi Jinping inherited a fast developing nation and is trying to slowdown the economy as an attempt to promote an egalitarian growth less dependent of exports. The move would also reduce the large amount of investments and the excess of liquidity would be solved by employing floating money in development of the countryside. Aligned efforts of rebalancing plus the appreciation of the Yuan Renminbi would also be desirable， to diminish liquidity， stimulate consumption and pay existing debts.The exports would suffer at the first time but a larger share of imports would balance foreign trade， reduce inflation and as a consequence， boost the so desirable consumption. The balance between the three basic sectors is also necessary and investments in modern agriculture techniques would raise the standards of rural families， aligned with better specialization and access to education and healthcare.A rapid urbanization of remote areas of China is being promoted，with the concept of cities being reviewed，granting higher accuracy in statistical data and permitting better integration and overcoming distances.
4.Conclusion and perspectives
The necessity of a shift in the present model that the Chinese economy is being conducted is clear not only to foreign analysts but also to the government.The slowdown of the economy that is being exhaustively reported in the last months is also necessary in order to rebalance the sectors in most need. China develops in a fast pace and has demonstrated in the last decades a strong capacity of modeling its way of conducting itself.With higher access to information brought by technology， the awareness of a change is spread all over the country and people are able to participate and follow the changes that will lead the country to become the worlds leader in short timeframe. The effects of a possible deceleration of the economy shall be manifested in the next years， but they are a part of a process that shall maintain the development in a stable， balanced， coordinated and sustainable way.
