Know-How Exchange : Student Questions

My take on it is that what is possible, but uncertain, is that the very magnitude and speed of China's growth have made it a mysterious unknown factor in the world economy. Good and bad surprises will multiply—unpredicted gains, losses, threats and opportunities.

China's current outlook seems especially precarious. According to the official Chinese "they said", in 2003 the economy expanded by 9.1 percent.

But, few non-Chinese economists fully trust the official statistics, which they suspect suffer from omissions and periodic political tampering. Many other non-Chinese economists think actual growth was much higher.

One fear is that loose bank lending is leading to vast overinvestment in basic industries like steel and aluminum.

Another possible danger is a runaway residential construction boom, driven by speculative purchases of apartment units in big cities like Beijing and Shanghai by local people with very limited income. Chinese banks lend on the apartments as collateral and aren't concerned with actual cash flow.

Result: Face with no casf flow other than rent, the glut will depress rental rates and borrowers, unable to pay their loans, will default and real-estate prices will collapse.

Another possibility is that, facing a deep slump, China would try to export its way out of trouble. The result could be a flood of steel, cement, aluminum and consumer goods onto world markets that depresses production, jobs, prices and profits almost everywhere.

The fundamental problem, and the best answer to your question, is that with a country as big as China undergoing so much dramatic change so quickly—moving from a "command and control" economy to a market system—the chances that anyone has a complete or accurate picture of what's going on are slim or nonexistent.

My interpretation, I hope that helps!

We always used to thought that market quantity is the best attribute to a economy, and that is the case of China, where you can provide low cost production. But in the other hand, if you don't increase your knowledge and economy per capita, the quantity market reduce their attractiveness and it will be best to have low market but more powerful. In that case, The quality will defeat the quantity.

Bye,

Juan Carlos