How Does China Affect the Global Economy? Henry Paulson's Economic Forecast (2014)

The government has in recent years struggled to contain the social strife and environmental damage related to the economy's rapid transformation; collect public receipts due from provinces, businesses, and individuals; reduce corruption and other economic crimes; sustain adequate job growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the work force; and keep afloat the large state-owned enterprises, most of which had not participated in the vigorous expansion of the economy and many of which had been losing the ability to pay full wages and pensions. From 50 to 100 million surplus rural workers were adrift between the villages and the cities, many subsisting through part-time low-paying jobs. Popular resistance, changes in central policy, and loss of authority by rural cadres have weakened China's population control program. Edward Lam, student, states his opinion on the economic prospect of China: he claims that it is another long-term threat to continued rapid economic growth has been the deterioration in the environment, notably air and water pollution, soil erosion, growing desertification and the steady fall of the water table especially in the north. China also has continued to lose arable land because of erosion and infrastructure development. Other major problems concern the labor force and the pricing system. There is large-scale underemployment in both urban and rural areas, and the fear of the disruptive effects of major, explicit unemployment is strong. The prices of certain key commodities, especially of industrial raw materials and major industrial products, are determined by the state. In most cases, basic price ratios were set in the 1950s and are often irrational in terms of current production capabilities and demands. Over the years, large subsidies were built into the price structure, and these subsidies grew substantially in the late 1970s and 1980s.[47] By the early 1990s these subsidies began to be eliminated, in large part due to China's admission into the World Trade Organization (WTO) in 2001, which carried with it requirements for further economic liberalization and deregulation. In addition, China suffers from atypically large indebtedness figures for an emerging economy, about 250% of GDP.[48] This large-scale debt problem is exacerbated by the tendency of Chinese state-owned enterprises to provide credit to other state-owned enterprises (almost 60% of all credit), which increases the frequency of credit inefficiency, disincentives credit discipline, and starves much more dynamic private sector firms of capital.[49] Furthermore, China rarely allows firms to default on loans, preferring to paper over bad loans with more credit. This cycle contributes both to the indebtedness of the economy and a decline in the health of the Chinese credit market.[48] Some fear that these trends could cause a drastic slowdown in China's growth, comparing the situation there with that of the Japanese asset price bubble. A potential slowdown would have adverse effects on the global economy. By 2010, rapidly rising wages and a general increase in the standard of living had put increased energy use on a collision course with the need to reduce carbon emissions in order to control global warming. There were diligent efforts to increase energy efficiency and increase use of renewable sources; over 1,000 inefficient power plants had been closed, but projections continued to show a dramatic rise in carbon emissions from burning fossil fuels. In the late 1970s and early 1980s, economic reforms were introduced. First of all this began with the shift of farming work to a system of household responsibility and a phasing out of collectivized agriculture. Later this expanded to include a gradual liberalization of price controls; fiscal decentralization; massive privatization of state enterprises, thereby allowing a wide variety of private enterprises in the services and light manufacturing; the foundation of a diversified banking system (but with large amounts of state control); the development of a stock market; and the opening of the economy to increased foreign trade and foreign investment. http://en.wikipedia.org/wiki/Economy_of_China Image By Liny203 (Own work) [CC0], via Wikimedia Commons