By Tom Purvis
The question on world economists’ minds is how will the Chinese economy change in order to drive itself through the 21st Century?
The answer has been made clear by Premier Li Keqiang. He aims to move the Chinese economy from one led by investment to one that is fuelled by consumption.
Investment in China has been prevalent in most sectors of the Chinese economy as citizens have moved from agricultural work to city-based work, in fields such as finance and technology.
City population growth has been exponential in China as the middle classes continue to grow, but it is becoming clear that the investment fuelled growth in China is slowing.
House building has been a key component of China’s investment fuelled growth, but this market is declining quickly. In the first quarter of 2014, house values fell by 7.7%, which in turn has caused property construction to decline by 25%.
What was once a sure profit for investors is now a very high-risk market as values fall, meaning that investors are moving their money elsewhere.
An important lesson the Eurozone countries can take from this is not to rely too heavily on one market, because as that market falls, other economies will fall with it.
Now that the investment-driven growth is falling, China is moving towards other markets to stabilise growth at around the 7.5% mark. To do this, stimulus packages are being utilised. Beijing has announced tax breaks for small and medium-sized companies as well as increased spending on infrastructure, allowing citizens to travel more efficiently.
This frees up more money for the Chinese consumer, as disposable income is not being depleted through paying for poor public transportation services. Meanwhile, businesses can try to promote further consumption, as there is not an increasing tax burden on them.
This holds some parallels with Eurozone economies, as they target a steady economic growth of around 2%. In 2013, George Osborne announced a corporation tax cut in the UK from 21% to 20%. He has also announced that he plans to introduce measures that aid small firms who have been rejected for business loans.
Despite attitudes towards the coalition government, it is clear that the Conservative-led government has a business agenda in mind as policy after policy is aimed at the use of enterprise.
Further, we have seen the announcement of HS2, where completion of phase one is supposed to cost £17.16 billion. In an era of austerity, it is clear that the coalition is running parallel with the Chinese government when it comes to business and infrastructure on a national scale.
Another key to the Chinese puzzle is the export market of the state. The Chinese economy can boast that it exports more than it imports, which can lead to higher domestic employment levels.
This is in contrast to the majority of the Western countries where imports outnumber exports.
In China, exports are valued at $2.21 trillion, with imports worth $1.95 trillion, which leads to a surplus of $0.26 trillion to spend on the domestic economy of China.
Compare this with a country such as the United Kingdom, which has exports worth $503.6 billion and imports at $529.5 billion. The strong car industry has boosted UK exports.
China’s economic growth is on target to hit the 7.5% rate, according to the World Bank, and the way the state is moving, it grows parallel with Western economies even if it wishes to stay away from that economic philosophy.
But should Western economics try to run parallel to China?
I think the answer is no, due to the daunting poverty that many Chinese citizens are faced with as a result of neglect from the government.