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The State of the Chinese Economy

Over the last 35 years, China’s economy has grown to an unprecedented degree. In another decade, it could become the largest in the entire world. Our overview briefly introduces several related topics: economic sectors, present challenges and opportunities, as well as the most important locations.
Environmental issues, such as carbon emissions from fossil fuels, are among the major challenges and opportunities for the Chinese economy.

China’s economy is in a transitional state. Its impressive GDP growth has slowed down somewhat:  With an estimated increase of 7.3% for 2014, it probably missed the government’s official goal of 7.5% by a narrow margin. Now it is important to stabilize the growth at a lower level and make it more sustainable. China will also have to master the change from a fairly low-tech economy to a focus on high-tech industries.

A so-called SWOT analysis reveals the strength and weaknesses of China’s economy, the potential threats it faces and the opportunities it could provide.

General Strengths and Weaknesses

Generally speaking, China has a very competitive economy with a good national infrastructure, especially for such a vast country. The government is also committed to upgrading the infrastructure (e.g. for China's long-distance transportation) even further.

The country also has a hard-working labor force with upwardly mobile aspirations. The growing middle-class and its considerable personal savings could create a positive climate for increased domestic consumption.

On a less than positive note, China needs to reform its big state-controlled enterprises, reduce public debt, and decrease overcapacities in several sectors (particularly the steel industry). Both the economy and the public administration require greater transparency, for example, with regard to tenders for government projects.

Threats: Education and Skills

The Chinese education system. as well as vocational training, should be improved to avoid skill mismatches on the labor market. Unskilled laborers will gradually become less important, while university graduates might benefit from a more business-oriented skillset or practical experience. There is also a noticeable demand for skilled labor with hands-on experience in their field.

An improved education for China’s workforce is all the more important as the country is no longer a resource of cheap labor. Due to rising wages and production costs, some companies consider outsourcing to other South and Southeast Asian countries, such as Bangladesh, Cambodia, or Vietnam.

Threats: Social Inequality

Education could also be one way of helping to reduce the glaring social inequalities. China is one of the most unequal societies in the world, as measured by the Gini coefficient. Higher qualifications, better job opportunities, and a comprehensive social security network would go a long way to redress this. The urban middle-class is steadily getting bigger, though,

In terms of internal development, there’s a strong regional component to the lack of social equality, too: coast vs. hinterland, east vs. west, city vs. countryside. The coastal provinces on the eastern and southern seaboard, with their booming mega-cities, are far more affluent than the rural areas of central and western China.

Threats: Demographics

There’s yet another issue tied up with demographics. China’s population is aging. The workforce started shrinking in 2012, and it will decrease further. However, the country has a low retirement age, and lots of people stop working in their mid-50s. Changing this would be an easy measure to stop the labor force from shrinking rapidly.

Moreover, as mentioned before, productivity in the agricultural sector is rather low. Even a moderate increase would set free lots of workers for other parts of the economy.

Threats: Environmental Issues

The unprecedented growth of China’s economy comes at a price. The country is struggling with a number of environmental problems.

The massive air pollution, which has repeatedly made the headlines in international media, is only one of these side-effects. Water pollutions, deforestation, soil erosion, desertification, and high carbon emissions (due to the widespread use of fossil fuel) pose a serious challenge.

Economic Opportunities

The need to take better care of the environment offers a variety of business opportunities, too. Creating a sustainable high-tech economy requires more innovation through cutting-edge research and development. It also calls for investment in green technology, renewable energy, and other improvements (e.g. automated "smart grids") for large-scale energy distribution).

These fields have a lot of potential for the Chinese economy. Other booming sectors include food-processing, as the higher urbanization quota changes the eating habits of many residents, as well as healthcare and medical technology: Greater access to health insurance plans, more demand for high quality healthcare, and the challenges of an aging populace account for this trend.

Finally, the telecommunications sector will grow even more. For instance, mobile devices for the next-generation 4G network, as well as the respective infrastructure, may benefit from the ever increasing number of smart phone users and tablet owners.


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