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The oriental giant moves strong

Its not as if OECD has come up with something the world had not anticipated before in its latest survey of the Chinese economy published last week. But that it will only be a matter of a few years - by 2016 to be precise - before China will take over superpower US as the worlds leading economy is not what one would have thought.

Last year, the country recorded a growth of 7.8 percent - meager by the tall standards China has set for itself and high by the standards set by growth figures of many struggling developed and emerging economies. And the OECD seems even more optimistic about the oriental economy, predicting a growth rate of 8.5 percent this year and 8.9 percent the year after that.

Whats driving this optimism of the OECD? Its none other than the countrys immense potential. Theres a lot of catching up to do before China can stand parallel to developed economies in terms of the huge capacities for economic growth. In particular, infrastructure is one arena offering a lot of potential for growth in the country in the form of further developments in rail and road networks.

Besides this, provision of residential living space would mean further investment in the property sector, making way for another productive capital investment that could further boost the countrys growth. And thanks to mechanization and the flow of labour from agriculture to other sectors such as manufacturing and services will further mean an increase in productivity and growth of the economy as a whole. Further, lets not forget the gains from innovation, competition and education that are yet to be seen to the maximum potential.

But alls not hunky-dory, with China facing challenges of its own as a growing economy - inequality, an ageing population, and environmentally-unfriendly growth to be precise. Though inequality has traditionally been high in the country - having peaked in 2008 - statistics indicate that it is on the decline. As urbanisation is on the rise, its recommended that the process be made more inclusive with better access to education for migrants, while the agricultural sector ought to be protected with better zoning and planning.

For the financial sector, greater regulation of bond markets, greater exchange rate flexibility, encouraging investments in equities and long-dated bonds, moving towards market-determined interest rates and strengthening risk diversification for wealth management products is recommended.

But monopolies of public institutions and nepotism towards politically-influential companies are also a must to transition towards a more mature, well-developed economy.

By managing its urbanisation well, - which is an inevitable consequence of growth - and aiming for domestic rebalancing through greater reliance on consumption, rather than the external sector, for growth will go a long way in helping China beat the US to become the worlds largest economy somewhere around 2016.

Though the US standard is a tall one to attain, the Chinese economy is on course to come close to it, as aptly summed by the OECD, "Chinas income per head will be only one-quarter that of the US in 2016. Even so, by 2020, China may have become a moderately prosperous society and a high-income country (by) the World Bank definition."


 



 
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Annual2012/13
Foreign Debt $60.9bn
Per Cap Income $1,368
GDP Growth 3.6%
Average CPI 7.5%
MonthlyFebruary
Trade Balance $-1.433 bln
Exports $2.167 bln
Imports $3.600 bln
WeeklyApril 14, 2014
Reserves $9.713 bln