China’s Economic Rise: Strengths, Weaknesses, and Future Prospects

Posted on Sep 12, 2024 in Geography

China’s Economic Rise in the 21st Century

Introduction

Over the past two decades, China has experienced the most remarkable economic development on the planet. The East Asian economy is increasingly centered around China and influenced by its policies and growth. This influence extends beyond mainland China to regions with significant Chinese populations like Hong Kong, Taiwan, and Singapore. These three countries have been major contributors to the capital that has fueled China’s growth in the late 20th and early 21st centuries.

China’s Growing Influence in the Global Economy

Between 1990 and 2003, China’s average annual GDP growth rate was an impressive 9.5%. This is significantly higher than the 3.4% growth rate of all developing countries and the 2.5% growth rate of developed countries during the same period.

Reasons for China’s Strong Growth

Several factors have contributed to China’s strong economic growth since the late 1970s:

Strengths of the Chinese Economy

  1. Abundant Human and Material Resources: China boasts a large pool of skilled and unskilled labor, high rates of saving and investment, a significant domestic market, and huge foreign exchange reserves.
  2. Increasingly Intense Trade in Dynamic Sectors: China has actively engaged in international trade, particularly in sectors with high growth potential and broad prospects.
  3. Growing and Internationalized Business Fabric: Large Chinese companies are gaining recognition overseas not only for their export capabilities but also for their increasing investments in other countries. These investments are driven by the need to access raw materials, build brand recognition, and acquire advanced technologies.
  4. Increasing Technical Sophistication: China has made impressive strides in technological progress, with over 300 million consumers of information technology and communication and over 120 million internet users.

Weaknesses of the Chinese Economy

  1. Shortage of Energy Resources: China faces a shortage of energy resources, leading to increasing energy dependence. In 2004, China consumed 6.4 million barrels of oil per day, with 40% imported. The International Energy Agency estimates that by 2010, oil consumption will exceed 7 million barrels a day, with 60% imported.
  2. Increasing Employment Problem: Unemployment and underemployment are on the rise due to urbanization, privatization, and integration into the global economy. The official urban unemployment rate rose from 2.5% in 1990 to 4.7% in 2004.
  3. Growing Inequality in Income Distribution: There is a widening gap between the prosperous coastal provinces and the poorer interior regions, as well as between a small but growing middle class (around 100 million people) and the 800 million rural residents.
  4. Serious Environmental Degradation: Pollution of air and water, noise, soil degradation, erosion, and desertification have worsened in recent years and require drastic measures. China’s large population also contributes significantly to global warming and ozone layer depletion, although its per capita carbon dioxide emissions are ten times lower than those of the U.S.
  5. Aging Population: The population over 60 years old, which accounted for 12% of the total in 2005, could reach 38% by mid-century. The average annual population growth rate is below 1%.
  6. Significant Denationalization: The importance of foreign direct investment in the Chinese economy has led to a degree of denationalization. This investment is estimated to account for one-third of industrial output and nearly half of foreign trade. This level of denationalization is concerning because it makes growth heavily dependent on the international strategies of multinational enterprises and hinders the implementation of effective industrial policies.

Conclusions and Future Prospects

China’s importance in the global economy is undeniable. In 2004, China had the sixth-largest GDP in current dollars and was the world’s leading consumer of many raw materials (coal, steel, cement, copper, aluminum, etc.), the second-largest consumer of oil, and the third-largest exporter of goods. It was also the top recipient of foreign direct investment. China’s strong growth in recent years (averaging 9.5% annually for three decades) has more than doubled its share of global GDP. Its dynamic expansion has contributed to a quarter of global GDP growth between 1999 and 2003, a proportion similar to that of the EU and higher than that of the U.S.

Based on its strengths, it is likely that China’s influence in the global economy will continue to grow rapidly in the coming years. However, China faces several challenges, including energy shortages, unemployment, income inequality, environmental degradation, an aging population, and denationalization. Despite these challenges, analysts predict that China will become an economic superpower within a few years. Its GDP is projected to surpass that of Germany in 2007, Japan in 2015, and the U.S. by 2040. Its GDP in purchasing power parity could exceed that of the U.S. within ten years. China’s share of global GDP could rise from 13% in 2004 to 20% in 2015, matching the current share of the U.S. or EU. Its share of global goods exports could increase from 6.5% in 2004 to 16% in 2015, nearly equaling the combined share of Germany and the U.S.

If these forecasts hold true, the 21st century will undoubtedly be the century of China, as it becomes the world’s second economic power.