The China factor in the world economy and the shipping industry in particular
Sourced from the Hellenic Shipping news website for the full story click here
In today’s market there are serious projections that China’s economy will replace United States after 10 to 15 years. How strong these projections are with China being the world’s second largest trading nation, but still facing great economic development challenges. If China rules the world of economy, what is its impact in the international shipping market? Does China’s economic growth is enough to rule the world of shipping.
Our analysis below describes the economic environment of China and its role in the shipping industry and gives some answers on the above raised questions.
PART I- Economic Environment
China holds the fastest growing economy in the world with international trade being a sizeable portion of its overall economy. During the past 30 years has changed from a centrally planned system that was largely closed to international trade to a more market oriented economy that has a rapidly growing private sector and is a major player in the global economy. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978.
China’s economy represented the highest growth rate, at an average 10%, per year during the period 1990-2004. China’s GDP grew 10.0% in 2003, 10.1% in 2004, and reached 10.5% growth in 2005 despite attempts by the government to cool down the economy.
China with its rapid and consistent growth surpassed France, UK and Germany and developed into one of the biggest economies in the world. In 2007, China recorded its fastest growth since 1994 as GDP grew by 13.1% and became the world‘s third largest trading nation after USA and Germany with a total trade accounting more than $1.76 trillion during 2006.
Chinese economy proved to be the main driver of the world’s economic recovery since its financial crisis in 2009. Throughout 2009, the global economic downturn reduced foreign demand for Chinese exports for the first time in many years. The government vowed to continue reforming the economy and emphasizing the need to increase domestic consumption in order to make China less dependent on foreign exports for the increase of GDP growth in the future.
On the onset of the global financial crisis, China launched its Economic Stimulus plan in an attempt to deal with the downturn in its economy. The plan, equivalent to US$586 billion, represented a pledge comparable to that subsequently announced by the United States. It has primarily focused on increasing affordable housing, easing credit restrictions for mortgage, lower taxes such as those on real estate sales and commodities, injecting more public investment into infrastructure development, such as the rail network, roads and ports. By the end of 2009, Chinese economy showed its first signs of recovery.
In mid 2010, China became the world’s second largest economy, surpassing Japan’s economy and ranked as the world’s second largest economy after the United States. China’s government announced that China’s GDP in the second quarter of 2010 exceeded Japan’s for the first time in 40 years. According to official data, China’s GDP reached $1.336,9 bn comparable with $1.288,3 bn of Japan’s, which proves to be the result of a three decade period of rapid growth that has lifted hundred of millions of people out of poverty.
The ongoing question in today’s market is: “Will China rule the world in the future? “Will China surpass and replace the United States in the forthcoming years as the world’s leading power?
Depending on how fast its exchange rate rises, “China is on course to overtake the United States and vault into the No.1 sometime around 2025”, according to projections by the World Bank, Goldman Sachs and others. It estimated that by then China’s GDP will exceed USA’s GDP, which is near $14 trillion today. However, there are some serious concerns on this forecast. China and its rival India is one of the countries with the largest industrial production in the world due to its massive population but is this enough to rule the globe?
Although, China’s overtake of Japan might have given proud in its economy, its per capita income of about $3,800 is just a fraction of that of Japan’s and America’s. Japan’s people are still among the worlds richest with a per capita income of $37,800 last year, so are Americans at $42,240, whose economy is still by far the biggest. However, China’s sheer economic size and its vast consumer demand could promise a brighter future as United States is wrestling with a financial crisis and Japan is trapped in a two-decade-old economic slump. It is believed that Japan will not be able to rebound its place in the world economy given its pace of growth. Japan influenced the world trade and economy in the eighties, while now it is China’s time to impact the world.
But, China has to create a dominant civilization so as to “Rule the Globe” and not just depend on the growth of its industrial production. China’s chief currency regulator, Yi Gang, stated in an interview with China Reform Magazine: “China is still a developing country, and we should be wise enough to know ourselves”, when asked whether the time was ripe for the yuan to become an international currency. China’s economy expanded 11.1% in the first half of 2010, from a year earlier and is likely to grow more than 9% for the whole year, according to Yi. China has averaged more than 9.5% growth annually since it embarked on market reforms in 1978. But that pace is bound to slow over time as a matter of arithmetic, Yi said. If China could keep growth this decade of 7-8% annually, that would be a strong performance. The issue is whether the pace could be sustained, Yi said. The Chinese government faces numerous economic development challenges including: a) strengthening of its social safety net, including pension and healthy system reform, b) sustaining adequate job growth for tens of millions of migrants, new entrants to the work force and workers laid off from state owned enterprises, c) reducing corruption and other economic crimes and d) reducing environmental damage, air pollution, soil erosion.
Thus, China has to leap in the next decades and create an environment of improved living standard, environmental protection, science and technology. According to Chinese media, the country has still a big gap to bridge, as the per capita income is far behind from its competitors, ranked in the 105 position of the world. “China Daily” newspaper stated that the world community must not have great expectations from a country’s economy that is still developing and has low per capita income. The second in size economy of the world doesn’t necessarily result in the second largest economic power of the world. China’s economy has still great challenges to face before being developed into the greatest leading economic power of the world after United States. However, the target of China is to reach the top in the world economy and there are some Chinese, who are not afraid to predict that in the next 15 to 25 years China will depose United States.
