Bordea Alexandru Daniel

An Economic Forecasting for China in 2013

The People's Republic of China (PRC) is the world's second largest economy by nominal GDP and by purchasing power parity after the United States. It is the world's fastest-growing major economy, with growth rates averaging 10% over the past 30 years.

China is also the largest exporter and second largest importer of goods in the world. On a per capita income basis, China ranked 90th by nominal GDP and 91st by GDP (PPP) in 2011, according to the International Monetary Fund (IMF). The provinces in the coastal regions of China tend to be more industrialized, while regions in the hinterland are less developed.

As China's economic importance has grown, so has attention to the structure and health of the economy. As the Chinese economy is internationalized, so does the standardized economic forecast officially launched in China by Purchasing Managers Index in 2005. Most economic growth of China is created from Special Economic Zones of the People's Republic of China.

As we all know, China is going to be surprisingly fierce competitor to the U.S. in terms of GDP. This country’s GDP grew 7 times as fast as America’s over the past decade (316% growth vs. 43%).

China's economy is likely to surpass the United States in less than two decades while Asia will overtake North America and Europe combined in global power by 2030 although it has experienced severe decline in growth rate in the last few years. In 2013, China’s GDP will grow faster than it did in 2012, thus ending several years of declining growth rate.

After increasing from 9.1 percent in the post crisis year of 2009 to 10.4 percent in 2010, China’s GDP growth rate declined to 9.3 percent in 2011 and will most likely fall to somewhere between 7.7 percent and 8.0 percent in 2012. China’s GDP growth rate has slowed in each of the past seven quarters, reaching a low of

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7.4 percent in the third quarter of last year. The World Bank recently predicted that China’s economy will grow by 8.4 percent in 2013. Thanks to the fact that the new leadership in China will be determined to get off to a good start economically, all predictions that say that this country’s GDP growth rate will exceed 8% may very well be accurate.

However, there is a possibility which cannot be ignored, that the Chinese economy will not hit the 8% mark in 2013. New Year’s optimism on financial markets has quickly been curbed by the World Bank, which on Tuesday cut its global growth forecast for 2013. Warning of potential downside risks in the eurozone, U.S. debt issues, declining Chinese investment or a disruption to oil supplies, the bank expects the world economy to grow by 2.4 percent in 2013, down from its June forecast of 3 percent.

Being the world’s largest exporter, and thus the world’s most dependable country of external economies, makes China extremely vulnerable to a bad turn of events in the world economy. Any decrease in demand for domestic products from external markets will eventually lead to a decrease in the national GDP. Adding to this the fact that China posted its weakest growth rate since 1999, with its economic expansion dropping to 7.9 percent in 2012 compared to 9.3 percent a year earlier, this possibility becomes more and more plausible.

Let us now discuss the extremely unusual economic growth of China compared to any other economies in the world. Keeping in mind that a healthy and stable economic growth is considered to be between 3-4%, China’s whopping, over 7% economic growth in the last decade, may lead us to the idea that the Chinese GDP is very unstable.

China has received enormous attention in the last decade. Many have predicted China will come to dominate the global economy in the next several years. Even more have marveled at China's ability to seemingly avoid severe setbacks from the Great Financial Crisis of 2007-8 and predict that it will be China that will pull the U.S., Europe, and the global economy out of the current slump.

One striking fact is the Chinese economy is nearly 50 percent investment spending, and 34 percent consumption. Comparably, the U.S. is less than 20 percent investment spending and nearly 70 percent consumption. The high level of

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investment spending is an imminent source of instability. Overinvestment is generating new capital stock that remains unutilized. Economists call this overcapacity.

NYU economist Nouriel Roubini states visitors will recognize Chinese overcapacity “in sleek but empty airports and bullet trains” and “highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.”

In other words, China is currently in a very severe real estate bubble, which may very soon explode.

References:

1. Chinese economy is unstable - http://www.telegram.com/article/20121114/NEWS/111149893/1017 - November 12, 2012

2. 17 Facts About China That Will Blow Your Mind - http://www.businessinsider.com/amazing-facts-about-china-2010-12?op=1#ixzz2IHoyQxRv

3. The economy of China

http://en.wikipedia.org/wiki/Economy_of_the_People%27s_Republic_of_China

4. World bank cuts global growth forecast for 2013

http://thediplomat.com/pacific-money/2013/01/18/world-bank-cuts-global-growth-forecast-for-2013/

5. What Is the Ideal GDP Growth Rate?

http://useconomy.about.com/od/grossdomesticproduct/f/Ideal_GDP.htm