5 Keys Ideas About China

In recent weeks, China has become the focus of market attention. The news we received on the U.S. economy are good. The Fed has taken a more optimistic outlook.The economy is growing and we have begun to create jobs. On the other hand, in Europe, was solved (?) the problem of Greece and the monetary authorities appear to be more quiet. Spain and Italy have begun to take steps to reduce its fiscal deficit. UK is also discussing the implementation of a new economic program. And France seems to be in the same direction.

In general, when one reviews the papers or watch the news on TV, it seems we are going through a quiet moment in the economic issue. All except China. In this case, there is not a sovereign debt problem, nor is fiscal deficit and unemployment.

In the case of China, the concern is on the side of economic growth. Or the deceleration of growth. With relation to the economy of this important country, I would like to discuss five important aspects that can help us understand what is happening in their economy.

1. - Economic Growth. - The China economy continues to grow and probably will do it for the next years. The difference is that this economy may not grow at 10%. Most likely, their growth in the future the order of 7% or 7.5%.

2. - Decrease in investment. - The China economy has been experiencing high rates of investment. For many years, the investment in this country has been the order of 50% of GDP. In the following years, this figure will be around 35% of GDP. This is still a very high level. However, represents a significant decrease, which affect economic growth in the following years. The Chinese authorities are studying the measures to increase domestic consumption enough to offset this level of investment. 

3. - Jobs. - The great economic growth in China has been made possible by the existence of a large surplus of workers. Thirty or forty years ago in China there was a large surplus of workers. Consequently, high rates of investment were possible because many workers were available at a very low cost. Today the situation is very different. Numerous reports point out that companies in China are becoming more difficult to find workers.Despite the great migration from the countryside to the city, the number of available workers has fallen significantly. 

4. - Changing economic model. - As a result of this, China is facing a process of transition from an economic model to another. Since China can not continue to grow providing unlimited amounts of workers, has to change its growth model. This model should be the Technical Progress. The plan for the next five years, approved by the Chinese authorities aimed at this goal.

5. - The Challenge.- China is currently considered a middle income country. The big challenge is to become a high income country by 2030. It is noteworthy that this is not a simple step. Most of the countries that could grow quickly, fail in their attempt to become a high income country. Achieving this will require profound reforms. This challenge is well described in a report by the World Bank and the Development Research Center of the State Council. A country that has had a centrally planned economy for so many years, faced a very big conflict of interest in implementing these reforms. Also, they need to land their economy in the short term in order to take off a long-term economy. The risk is that they can not make a successful landing. In that case, will have a serious economic problem.