China Economy has been a hot topic lately amongst politicians, economists, and business
executives around the world. Many are in awe of the growth of the China economy
over the last thirty years. There are three driving forces behind the China Economy;
the same ones which drove Japan and the Four Dragons (Hong Kong, Taiwan, South Korea,
Singapore) to world economic powers after the second world war and from the 1960's
to the 1980's respectively.
Photo Credits: HongKong-Februar-2007 - A. Feldmann
China Economy - 3 Reasons for Growth
China Economy is fueled by high quality human capital, functioning market institutions
and an early stage of economic development.
Human Capital is the ability of the Chinese people which involves the
skill and work ethic of the labor force and the ingenuity and brilliance of the entrepreneurs.
The human capital quality is part of the country's culture and makeup. Much of
this is transferred from generation to generation through family education. Countries
with world class economic power such as Japan, Germany, South Korea, the United States
and China all have high quality human capital.
Functioning Market Institutions
The second driving force behind the China Economy
is a functional set of market institutions. Market institutions began to develop
in China in 1978. The Chinese government went through economic reform transforming
the China Economy from a planned economy to a market economy. Market institutions
provided motivation and rewards for hard work. Resources are also channeled to the
right areas through supply and demand.
Early Stage of Economic Development
The third driving factor behind the China economy
is the technology gap between China and the most advanced nations. During China's
early stage of economic development, the technology gap is large. This provides
China with an opportunity to catch up quickly through the adaptation of advanced
technologies. As the China Economy matures, the technology gap will narrow and the
growth rate will decrease. However, it is anticipated that the China Economy will
continue to grow more than 8% for the next 10 to 15 years.
8 Impacts of the China Economy
The growth of the China economy in the last 20 years has brought significant changes
to the Chinese people.
Increase in Income of Chinese Families
The income of the Chinese in urban centers
increased by 9 fold from 1978 to 2000’s. Similarly, families in the countryside
saw their income increased by 7 fold. Along with increases in income, there was
also a marked increase in home ownership. By the mid 2000's, 89% of the Chinese
had owned their own homes. It is just another indication of China's growing wealth.
Decrease in the Engel Coefficient
The Engel Coefficient measures the expenditure on
food as a proportion of the total family expenditure. This coefficient dropped from
57% in 1981 to 37% in 2005 for the urban Chinese. The Chinese has more disposable
income to spend on non-essential items.
Upgrading Consumer Goods
When consumers become wealthy, there is a constant desire
to upgrade their consumer goods. In the 1990's, wealth according to the Chinese
is demonstrated by the ownership of a number of materialistic items such as the automobile,
cell phone, personal computer and air conditioner. Today it is marked by the ownership
and upgrading of items such as housing, cars, electronics, education spending, vacationing,
and services. All these categories have increased by the mid 2000's.
Tourism and Vacationing
These categories are now in high growth as the China Economy
delivers more wealth to the Chinese. The domestic tourism market used to be marketed
to foreigners but it is an industry that is now driven by the increase of the Chinese
Spending on Credit
Consumption on credit is popular in categories such as home decoration,
education, and cars. Gone are the days of only spending on what you have earned.
Enthusiastically Spends in Health
As evidence of improvements in health investment,
the life expectancy of the Chinese has significantly increased. It was only 35 years
old half a century ago but this number has increase to 72 years by the mid 200's.
Improvements in healthcare and physical fitness are major contributors.
Increase in Education Spend
The Chinese is well aware of an education as a means
of moving out of poverty. The percentage of the Chinese population earning college
degrees has increased during the last 20 years. Chinese students studying overseas
have increased by 40% in recent years. Illiteracy rates have been dropping accordingly.
Division of Social Strata
The China Economy has begun to bring division to China's
social strata. Farm workers as a class are shrinking as the working population shifts
to other trades. It also has brought about the strata of high and medium income
in the Chinese society.
The result of all of these impacts is due to a booming economy which is full of opportunities
for the China exports and Import from China entrepreneurs from around the world.