What Will Happen If the Chinese Bubble Bursts?
The purport of this work is to reveal the influence of eventual failure of the Chinese market on the world’s economy from a globalist’s point of view.
China, as a growing world power, has a significant impact on the global economy. An eventual downturn of its market will lead to dramatic consequences for the economy on national and world-wide level. As the country with the highest IT goods export rate, its failure will lead the global community to a larger poverty gap, less investment, less technology: a stagnant economy. Due to its mixture of cheap labour, low living standard, undervalued currency, China has become a remarkable economic engine. Chinese economy cannot easily collapse on the input supple side, as millions of people join the labour force each year. Moreover, the country’s sizeable territory ensures a constant stream of resources. On the other hand, the Achilles ' heel, of the eastern country and the activities that might crack are the FDI and export of goods. About 2/3 of China’s exports are produced by foreign-invested companies. China is extremely dependent on the FDI, because there are very few large private firms and overseas investments. Firms consist of 14 to 25 employees on average. If a crisis occurs, “China’s economic weight would become a liability. The IMF estimates that the impact of Chinese demand on the world’s largest economies has more than doubled over the past decade”1. But the Chinese model has its limits, and that has far- reaching consequences for the U.S. and Europe, both of which are increasingly dependent on China. So far the Asian country has the biggest IT export share world-wide, Earth’s third largest trader, second largest economy in PP GDP. Therefore, a would-be failure of their market will affect the global economy in a dramatic way. What would be the exact consequences from this downfall, we are going to evaluate using the PEST model in the following paragraphs.
Political aspect – On the political stage everything
China, as a growing world power, has a significant impact on the global economy. An eventual downturn of its market will lead to dramatic consequences for the economy on national and world-wide level. As the country with the highest IT goods export rate, its failure will lead the global community to a larger poverty gap, less investment, less technology: a stagnant economy. Due to its mixture of cheap labour, low living standard, undervalued currency, China has become a remarkable economic engine. Chinese economy cannot easily collapse on the input supple side, as millions of people join the labour force each year. Moreover, the country’s sizeable territory ensures a constant stream of resources. On the other hand, the Achilles ' heel, of the eastern country and the activities that might crack are the FDI and export of goods. About 2/3 of China’s exports are produced by foreign-invested companies. China is extremely dependent on the FDI, because there are very few large private firms and overseas investments. Firms consist of 14 to 25 employees on average. If a crisis occurs, “China’s economic weight would become a liability. The IMF estimates that the impact of Chinese demand on the world’s largest economies has more than doubled over the past decade”1. But the Chinese model has its limits, and that has far- reaching consequences for the U.S. and Europe, both of which are increasingly dependent on China. So far the Asian country has the biggest IT export share world-wide, Earth’s third largest trader, second largest economy in PP GDP. Therefore, a would-be failure of their market will affect the global economy in a dramatic way. What would be the exact consequences from this downfall, we are going to evaluate using the PEST model in the following paragraphs.
Political aspect – On the political stage everything
Bibliography: 1 - http://www.bloomberg.com/news/2011-10-04/china-s-fall-not-its-rise-is-the-real-threat-to-the-global-economy-view.html 2 - Waltz, Kenneth. Globalization and Governance. PS: Political Science and Politics, Vol. 32, No.4, (Dec. 1999), 694 3 - JOHN LEE; Director of Foreign Policy, Centre for Independent Studies, Visiting Fellow, Hudson Institute 4 - CATHERINE L. MANN Barbara ’54 and Richard M. Rosenberg Professor of Global Finance, Brandeis International Business School, Brandeis University 5 - http://www.economist.com/node/21548943 6 - RICHARD JERRAM Head of Asian Economics, Macquarie Capital Securities 7 - http://www.gordonchang.com/qanda.htm 8 - https://mises.org/journals/qjae/pdf/qjae10_2_5.pdf