Introduction
China is one of the largest countries in the world. Its territory is home to more than 21% of the world's population. The economy of China is characterized by consistently high growth rates. However, the Chinese government faces numerous economic challenges, including:
• reducing its high domestic savings rate and correspondingly low domestic demand;
• support of respective job growth for tens of millions of workers and creating new jobs;
• reducing corruption and other economic crimes;
• reducing harm to the environment and the growth of social inequality, which is related to the rapid transformation of the economy.
Economic development was much faster in coastal areas than in inland, and approximately 200 million rural laborers and their children have moved to the cities to find work. The consequence of the policy of "one child" is the fact that China is now one of the most rapidly ageing countries in the world. The deterioration in the environment - particularly air pollution, soil erosion and steady fall of the water table, particularly in the North is another long-term problem. China continues to lose arable land because of erosion and economic development. The Chinese government seeks to add energy production capacity from sources other than coal and oil, focusing on nuclear and alternative energy development.
Development trends of China's economy.
The Chinese economy is growing at a rate significantly exceeding the growth rates of the leading economies in the world.
So, according to the IMF, the GDP growth of China in 2010 was 10%, and in 2011. 9.7% (Morrison, 2009). Citigroup estimated that the increase will be somewhat lower: in 2010, the economy of the PRC would increase to 9.8%, and in 2011 to 9% (Johnson, 2009). According to experts of Bank of America - Merrill Lynch, China's GDP in 2010 would increase by 10.1%, and in 2011. - 8.8% (Chakravarty, 2009). This was the forecast, and it is clearly seen that everything happened exactly according to it.
Investment and domestic consumption dominate in the structure of China's GDP. Thus, investments of private companies in 2009 accounted for 42.6% of GDP, and household consumption - 41,32% of GDP (Lee et al., 2009).
Thus, on the one hand, the basis for China's economic growth is the increase in population (+0,665% in 2009.) and increase in standard of living, including due to migration from village to city (average annual growth of urban population since 2005 was 2.7%). On the other hand, the share of investment in GDP is high enough (third in the world), and this indicates a high rate of domestic savings. In other words, the Chinese government pursues a policy of income redistribution in the economy on the side of not current, but future consumption reflected in large-scale national investment projects.
This growth is fraught with threats both internal and external - for the world economy, as the PRC's integration into the global economy is high enough (fraction of the sum of exports and imports in 2009 in GDP was 24%) while the share of China's economy in world GDP is constantly increasing.
So there are several "bubbles" in the Chinese economy and financial market, each of which carries the risk of destabilization and loss of fragile equilibrium in the political structure of the state, which, to maintain stability and the status quo, requires a GDP growth of 8% per year. That's how much it takes to absorb migrants coming from inland regions of China without creating social tension.
The stock market crash of 2015
The collapse of the stock market of China was a falling of quotations of securities on stock exchanges in China in July 2015 after a significant "overheating" of China’s economy. This resulted in "inflating a bubble" in the stock market due to massive investment in shares, the rate which exceeded the growth and profit of companies. From November 2014 to June 2015, stock indices on the stock exchanges of China have increased more than twice — so, the Shanghai Composite index the Shanghai stock exchange rose from 2506,86 (17 November 2014) to 5045,69 (June 8, 2015) (Shanghai Index, 2016).
On July 8, the index of Shanghai stock exchange Shanghai Composite fell by 6.4% and the CSI300 index by 6.7 %. The panic started because of the fall, and next day, more than 500 big companies suspended trading in the securities because of risk to fail. The fall of stock exchanges of China is also reflected in the global stock market: Nikkei 225 fell by 3.1%, Australia dropped iron ore prices by almost 6%, the index South Korea Kospi fell by 1.2%, as oil prices fell from 60 to 57 $/barrel. Securities that had a turnover on the Chinese stock market suffered losses of more than 3 trillion dollars of its value, which was the highest devaluation since 1992.
On July 18 the next collapse occurred - the Shanghai Composite index fell by 6.15%. In General, for three weeks, from July 8, the Shanghai stock market fell by 30 percent.
On August 17, 19 and 20, after a temporary stabilization, the collapse of the stock market resumed. On August 24, the collapse of the stock market in China led to the fall of stock indices at 6-8% worldwide (Ro, 2016). On August 25 global stock indexes regained a little-lost ground against the further fall of stock indices in Chinese stock exchanges, when the SSE Composite index for the first time since the beginning of the crisis, fell below 3000 points — from 5045,69 on June 8, 2015.
The collapse continued in 2016. On the first day of trading, China's CSI300 index fell by 7% (Udland, 2016). Because of this, trading on the Chinese markets were closed before the end of the day. On January 4, 2016, Beijing officially lowered the rate of the national currency compared dollar to 6,5032 yuan (News.xinhuanet.com, 2016). For the first time in 4.5 years, the ratio of exchange was weaker than 6.5 yuan per dollar. On February 25 Stocks in China fell by more than 6%. From the beginning, the Shanghai Composite index fell by 23%. On February 29, there was a new collapse of the stock market of China. In early March, the International Rating Agency ‘Moody's’ decided to downgrade the credit rating of China from "stable" to "negative."
How China's economic troubles can affect other countries
Economic China fever "infected" the leading economies of the world. U.S. The Dow Jones industrial average in early January 2016 fell as rapidly as never before in its history. Trading on the stock exchange in Japan 2016 began with the worst trades over the past nearly two decades, since 1997. Experts call the beginning of 2016 the world's worst economy in the last four years (Snyder, 2016). Following the stock market decline, the raw materials market was also rapidly falling, losing in price of metals and oil.
China is paying for economic growth with disastrous for the environment
China's economic growth has outstripped the capacity to replenish natural resources of the country, says Liu Qin, editor of the site chinadialogue.org (Qin, 2015).
Over the past half century, China's economy has grown in 80 times, but it paid a huge price for this. China pays catastrophic for the environment. According to a recent report by the world wildlife Fund "the Viability of the world: China 2015", populations of terrestrial vertebrates animals from 1970 to 2010 decreased by 50%.
The report of the World Wildlife Fund provides a preliminary calculation of the environmental price that China paid for 50 years of rapid economic growth. According to the report, the global "biocapacity" is limited and relatively constant — even in terms of careful management, potential for its growth is limited (WWF, 2016).
The biocapacity of the lands and waters are to ensure the reproduction of renewable resources and absorb of CO2 emissions. Growth is estimated as unstable if in ecological footprint exceeds its biocapacity.
According to the report, in 2010, the average resident of China required 2.2 global hectares per person (gpp) of productive land to ensure its natural products and basic services. In other words, the ecological footprint per person in China is 2.2 gpp. Although this indicator is less than the average on the planet (2,6 gpp), but this is more than twice bigger than the biocapacity per capita in China (in 2010 — 1 gpp). This means that the biologically productive land in the country is not able to provide its residents with renewable resources.
Environmental overload in China raises a number of issues — drought, water scarcity, soil erosion, loss of biodiversity and increased greenhouse gas emissions, which can lead to uncontrolled climate change.
Now China, a country with a very rich and unique culture, is experiencing a ecological disaster: water, air and soil are heavily polluted.
Technology and the future of China
China today is not only "grey jackets", people in the country now are not satisfied with the role of the world industrial giant. The country has a new challenge – to achieve research excellence.
Economic model that ensured and continues to ensure economic growth in China is not innovative. Its cornerstones are investments and exports, and innovation, primarily private, domestic, until recently, played a secondary, non-system role.
For the first time, the task of building innovation economy in China was delivered in early 2006. The innovative course was announced by a new national strategy. The share of expenditure on research and development in GDP is supposed to increase by 2.5% by 2020 (in 2005 it amounted 1.34%), and the contribution of scientific and technological progress in economic development – more than double, above 60%. The dependence on foreign technology will fall to 30%.
Over the past decade, China has made some progress in the development of modern technology. If in 1985, according to the United Nations Industrial development Organization (UNIDO), the country’s export of high-tech goods was not even in the top 25 in the world. In 1998, it rose to 11th place. In 2004 exports of such goods exceeded import (Ah, 2016).
Promising prospect opens wide integration of leading research institutions and universities with the largest industrial enterprises.
Thus, China has already surpassed Japan on volumes of scientific research and is rapidly catching up with America. The development of Chinese science is ahead of all forecasts; China is committed to the creation and integration of innovative technologies in all spheres of industry. Certainly, in modern conditions of the financial crisis, when all countries cut back on development expenditure on research, relatively inexpensive Chinese technologies have a chance of success. It can be assumed that in the future, Chinese technology evolving at such a pace, will be able to occupy a leading position and grow in value.
Analysts suggest that this year, the Chinese government will strengthen the link with global markets. The Bank of China weakened the yuan and dismayed foreign investors, and then was forced to intervene to stop the decline of the national currency. Some analysts argue that China was too cautious, reducing the key rate, and it is still too high to stimulate economic growth through the availability of loans. Investors are unclear how will this situation develop.
Experts believe that worst for the Chinese economy is yet to come. The increase of the national debt and the capital outflow, bankruptcy of companies is increasing, the share of problem loans in the banking sector becomes more threatening. However, in recent months, China's leadership signaled that can afford a slowdown in growth since it solves the problem of reconfiguring the economic model. The consensus forecast of economists — China will slow down by 2020 to 6.5% of GDP (Yan, 2016).
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