Wednesday, December 17, 2008

The state of China’s economy 2009

Introduction: Over the past few decades there have been numerous forecasts predicting an "imminent collapse" of the Chinese economy. Some of these have a strong Anglo-Saxon ideological bias with little substantive theoretical or empirical support, while others offer standard economic principles in defense of a negative forecast. More recently, however, these pessimistic forecasts have been fewer in number and less dire. Meanwhile, some other analysts have offered quite favorable economic performance forecasts. Who appears to have been correct?

This paper will examine some past forecasts, and then evaluate the current performance of the Chinese economy. The first section will provide a brief summary of some previous forecasts. Analysis of the recent performance of China's economy will be presented in the following section, including trends over the past 5 of both standard macroeconomic and some socioeconomic indicators, using both Chinese and non-Chinese data sources. The third section will evaluate the overall state of the economy at present, weighting performance indicators both according to their relative importance to Chinese policy makers as well as to non-Chinese analysts. The following section will suggest the likelihood that the economy's performance during 2003-2008 is likely to continue for another five years. The final section will offer a summary and conclusions as to the likelihood that China's economy will inevitably collapse within the next 5 to 10 years.

Conclusion: Taking into consideration data provided by both Chinese and respected international sources of macroeconomic indicators the Chinese economy, as well as the likely impact recent events within China, no imminent collapse of the Chinese economy appears likely over the next five years. Rather, the economy is likely to continue to perform favorably when GDP growth, urban unemployment, external and domestic fiscal balances, stability of the banking system, FDI, and exchange rate stability are given relative importance. As the world financial crisis unfolds China may wind up owning substantial shares of some major financial institutions. Thus, as 2009 approaches, China's economy is stronger and more fiscally sustainable than every G-8 members' economy. However, Chinese policymakers will need to address more aggressively growing environmental and income inequality while preventing higher rates of inflation - particularly for food and health care, if China's economy is to continue on its favorable path.

Full Monty at Post Autistic Economics Review.