fg. In July and August 2015, the European media called their readers’ attention to the stock exchange quotation at the Shanghai Stock Exchange, the Shanghai Composite, which had dropped by 40%. From December onwards this stock index fell further. The daily trading sessions had to be cancelled repeatedly because stock market prices had dropped by 5% or 7%. Despite of these declines, the current share index level remained about the same as that at the end of 2014.
However, this apparent stability was paid for dearly. On behalf of the state large securities purchases were made on the stock market, while the pension funds among others were prohibited to sell dividend titles – often in freefall – from their portfolios. The central bank cut its key interest rate. In short: there were panic tradings and manipulations … similar to those in the West during and after the great stock market crash of 2007/2008.
It should be noted, however, that this kind of development is less serious for the Chinese real economy (change in gross domestic product GDP at constant prices in %) than it would be for the American real economy, as, unlike Americans, the average Chinese will hardly own shares. A comparison of the “elites” assets would, however, lead to a different image, since there are more millionaires in the Chinese Politburo than in the American Congress.1
What about the real development of the economies? After China’s GDP increased by more than 14% in 2005 and thus reached a summit, its growth was 6% in the year 2015. However, this seemingly catastrophic last year’s rate must be compared with those of the United States and Germany as well as that of the entire world, which were all below 4%.
Even if the assertions are true that corruption plays a certain role in China’s development, we must not forget that China is in a major and long-term process of change, namely from a planned to a market economy.
Formerly export and investment as well as productivity were particularly encouraged. As the amount of investment was very high – which is normal in a phase of industrialisation – and as there was a lack of productivity gains, a huge debt has been created since the global financial crisis of 2007/2008. From 2007 to mid-2014 this debt climbed from 7 to 28 trillion US dollars2, which is 282% of the GDP. The accumulation of debt has therefore risen higher than that of Germany and the United States together. On the macroeconomic level it must, of course, be taken into account that the large positive Chinese assets abroad must be set off against China’s debt. China has now placed the emphasis on consumption and on the health and education services so as to counteract the explosive development of the debt. In addition, income tax rates are raised in an attempt to convince Chinese taxpayers to save less. Will it really work? Or will some Chinese transfer their assets to abroad?
China’s economic future depends on choosing the right strategy, and on how this can be made plausibly to the population. We can only wish China success in effecting this without a further increase in the already huge gap between rich and poor – as we are indeed experiencing it in the West. •
1 F. William Engdahl. Target: China, www.ProgressivePress.com, San Diego, Calif. 2014
2 http://www.investopedia.com/articles/forex/091115/chinas-economy-transition-sustainable-growth.asp; p. 2
(Translation Current Concerns)
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