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Source: www.asiaecon.org |

CHINA GROWS TO BE THE WORLD'S THIRD LARGEST ECONOMY


China overtook Germany as the world's third largest economy after the Chinese authorities revised previous 2007 growth figures. China claims that its GDP expanded 13%, compared to a previous estimate of 11.9%, to $3.5 trillion.


China overtook Germany as the world’s third largest economy after the Chinese authorities revised previous 2007 growth figures. China claims that its GDP expanded 13%, compared to a previous estimate of 11.9%, to $3.5 trillion. Although China’s growth rate is expected to drop in 2008 and further slow in 2009 due to the global financial meltdown, the revised figures underscore the country’s economic importance in the global market.

China has experienced rapid transformation in the past 30 years since governmental reforms have eased economic limitations and aimed to liberalize China’s economy, increasing the country’s global integration. China’s high rate growth is expected to continue in the next following years due to its high levels of urbanizations and its continuing potential for technological developments. However, economists predict a less promising long-term outlook considering China’s rapidly aging population, environmental damage costs and high levels of poverty.

Widespread poverty has become a significant problem as China’s 1.3 billion residents currently count with a per capita GDP of about $2,500 while Germany’s 82 million residents on the other hand, have a per capita GDP of $40,400. Meanwhile, bankruptcies and layoffs continue to plague the economy and unemployment continues to pose serious risks as it aggravates the domestic demand. The massive current unemployment rate may also potentially cause social unrest, risking the country’s stability. Moreover, the current economic slowdown has already limited the country’s economic growth in 2008 and will further impact China’s performance in 2009.

China’s growth rate is expected to have dropped 9% in 2008, while authorities have slashed expected growth in 2009 to 6%. China’s exports have tumbled by 13% in the end of 2008. In December alone, exports plunged 2.8% compared to the same month the year before, reflecting the biggest drop in a decade. While imports have also plunged, stabilizing the trade deficit, analysts expect a decrease in domestic demand this year. Furthermore, as the predicted stimulus package is injected into the economy, imports for raw materials are likely to increase, while the global demand for exports will continue to decrease in light of the economic crisis, all of which would significantly impact the country’s trade balance and consequently, its GDP growth.

China’s plunging export sector has pushed the government to place considerable efforts towards reviving the economy in this difficult time. For instance, Chinese authorities have made important rate cuts as well as encouraged higher number of bank loans, allowing for a boost in domestic demand. Analysts expect China’s economy to recover by the end of 2009.

In fact, economists suggest that if China continues to grow at this rate, the country could surpass Japan in 2012 and the United States in as soon as 2027, to become the world’s number one economy.

As China continues to grow, its impact in the global arena will become increasingly relevant. China has already enjoyed increased political and economical collaboration with developing nations in Latin America, Africa and parts of Asia, as its extensive foreign reserves of $1.5 trillion, allow for broad investments in foreign countries. Moreover, China is gaining growing importance in the West, as recently reported by the Washington Post, the country is gaining influence in global financial institutions such as the IMF, that have long been dominated by Western nations. Additionally, China is now the biggest holder of U.S. Treasury securities.

China’s current economical decline will place strains in the global financial system. However, its rapidly growing economic performance and its increasing financial weight in the global market, will place China in a crucial position to influence global growth.

Source: www.AsiaEcon.org

Source: www.asiaecon.org |


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