China’s Future Economic Growth: Challenges and Policies

Topics: Stock market, Economics, Real estate Pages: 4 (1455 words) Published: October 21, 2009
Since the opening up and reform of China, the economy has been sustaining a rapid annual growth rate of 10%. Since 2004, it has become the world’s third largest trading nation, after US and German. However, behind the fast growth of the economy, some potential challenges still exist and require effective policies if China want to sustain fast development in the future.

By examining the components of China’s GDP, it can be found that the economy has been over reliant on investment (42% in 2005) and export (net export account 10% in 2006). This growth model is considered to be unsustainable for several reasons.

There are four kinds of bubble economy may strike china’s economy . First, is the bubble economy in Real estate, it can be characterized by rapid increases in valuations of real property which is caused by the speculative factors. It contributes 2.03% out of 9% the annual economic growth of China. This is bad for China’s healthy growth. Real estate developers are constructing luxury accommodations for higher profits, however, the houses cannot be afforded by the majority and remain empty. The empty houses generate little extra production for the economy and harm the welfare of the residents. This is a kind of waste of resource. Similarly, the stock market of China has also been in a bubble. Over-confidence on the stock market drives continuous growth in the stock price. By 2007, it is widely believed that the market price of stock is much higher than its real value. Economic growth driven by bubble economy is thought to be unsustainable and dangerous. When the prices of houses and stock market fall, the bubble bursts, the investors may end up with a burst. In 2008, the price of houses has equivalently stopped rising and in some regions such as Shenzhen has dropped rapidly. Also, the share price of stock market has fallen by more than 45% compared with the highest level in 2007. This kind of economic phenomenon will reduce the efficiency of...
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