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Is China a Great Place for Investment?

Autor:   •  April 1, 2014  •  Essay  •  513 Words (3 Pages)  •  635 Views

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Is China still on its growth path?

A recent statistics supports that the economic performance in China, I terms of GDP, has been decreasing year by year. Actually, China’s GDP in 2010 was up to 11.9%, in 2013 data records a deep descent to 7.7%.

Although the newspapers see this decline in a pessimistic way, economy in Chia is not really collapsing; in fact the negative trend is because of the tight monetary policy between Jan. 2010 and Nov. 2011 that reduced the growth of money supply.

During that period, to implement tight monetary policy, reserve ratio has been raised 12 times spreading at 21.5% for most of the banks and the interest rate increased 5 times.

The Chinese government has made this strategy principally to fight the inflation (that was rising between the years 2010 and 2011, especially in Jul. 2011 the CPI reached 6.5%) and stabilize the economy. This economic measure succeeded because the inflation slacked off quickly getting a CPI equal to 1.72 in the Oct. 2012.

The “price to pay” for this, was a drop of the economic growth. To cope with this problem, China can use much expansionary fiscal policy by making more government spending and fewer taxes. The Chinese government has all the fiscal conditions to use this strategy; actually in 2013 the ratios between Deficit/GDP and Debt/GDP are respectively 2.1% and 18%, lower than many countries.

Although this, there is no imminent reason to stimulate the economy now because the priority is focused on the quality of growth by restructuring and keeping the pollution emergency under control.

China: 2nd largest economy

Statistics say that Chinese GDP is a little bit more than 1/3 of the US and will outclass it maybe around 2020 (approximately calculated using The Rule of 72 and considering the currency variable). But if it considers the low average income the time to reach US GDP gets

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