How effective is China in managing the challenges to sustainable economic development?

How effective is China in managing the challenges to sustainable economic development?

Since Deng Xiao Ping’s economic reforms in 1979, China has emerged as one of the fastest growing economy in the world, and eventually being the 2nd largest economy in the world. Despite China having a relatively high Gross Domestic Product (GDP) as compared to other countries, in recent years, China’s economic growth has slowed down to a “New Normal”. As such, there are many challenges in which China has to manage in order to sustain its economic development. However, China could seem to be not effective in managing the challenges to sustainable economic development by looking into these different aspects namely, the social, economic and political factors.

 

  • Widening income disparity

China can be argued to be ineffective in managing social problems such as the widening of income disparity given that it is still widening over the years. With China emerging as the world’s 2nd largest economy with tremendous economic growth, it has inevitably led to greater income disparity and the widening of the urban-rural divide given that this economic growth success is not equally shared among its huge population. Furthermore, this eventually caused unhappiness amongst the rural people as while the urban elites continue to get richer, those living in the rural areas continue to struggle due to the rising cost of living and thereby, would not be able to afford any good and services. This inevitably affects China’s economic development given that consumption levels as a whole would be lowered due to the difference in consumption levels between the urban and rural areas. Thus, this poses as a huge challenge that China needs to address in order to prevent a spill over effect of consumption levels which would eventually affect China’s GDP and economic development. However, despite measures taken by the government such as the Income Inequality Reform Plan in 2013, income disparity still persists and worsened over the years, whereby in 2015, the GINI coefficient for national income was 0.462, one of the worst in the world. Thus, in this case, China has not been effective in managing the social challenge to sustain its economic development as the income gap still continues to widen.

 

  • Inflation

China can be argued to be ineffective given its lack of capability to curb inflation. Inflation is defined as the general increase in the general price levels and is another challenge for China to sustain its economic development as inflation would cause a decrease in consumption levels and thus, result in a slower economic growth. Therefore, inflation poses as a huge challenge to the sustainability of China’s economic development given that China needs to re balance its economy by boosting consumption because the country cannot rely on exports alone to drive economic growth. However, despite measures put in place in order to curb inflation such as raising the amount of cash banks must keep in reserve to 18½% of the money they have on deposit in order to mop up excess cash floating around the economy, China has not been effective in managing inflation to sustain economic development as inflation rates continue to rise over the years with China’s inflation rising 1.9% as of September 2016. Hence, China is not effective in managing inflation to sustain economic development as although it has measures to cope with inflation, inflation is still seen as a challenge in China, and not yet being resolved.

 

  • Ineffective in managing its environmental problems

China is ineffective in managing its environmental problem as China is using large amounts of coal due to inability to secure a long term energy source for itself, as a result, unable to sustain its economic development due to loss in trade because of environmental problems. China’s heavy reliance in coal as an energy source has led to a surge in air pollution and greenhouse gases given that China’s coal-fired power plants are one of the main causes of the rapid increase in greenhouse gases and emissions, being the world’s largest after the US. This bad environmental record of China’s has hurt the bilateral ties with its neighbours such as South Korea and Japan. In 2013, not only did the South Korean media began to refer to the smog making its way from China as “air raids” , but Japanese studies too claim that air pollution from China is responsible for the high level of mercury deposit in the iconic mount Fuji. Furthermore, in 2013, researchers claim that China is responsible for 40% of Tokyo’s annual average PM2.5 levels and 60% of Kyushu’s. Although China has imposed new laws to close down any coal factories which exceeds the amount of harmful pollutants into the air, up till today many coal factories are still up and running. Furthermore, given that relations in the region are already sufficiently strained over issues such as the Senkaku/Diaoyu Islands and air space in the East China Sea, the inability to resolve its environment problems would only serve to harm relations future, should toxic air continue to migrate across China’s borders. Therefore, not only does China has to overcome this challenge of improving the energy source of its country, but to improve its ties with other countries so as to increase its exports with them in order to sustain its economic development.

 

  • Boosting the country’s economy

However, in certain aspects China can be argued to be highly effective in sustaining its economic development. This is because China can be seen to be effective in maintaining its economic development through the maintaining of the economic stability that it has achieved. With Deng Xiao Ping’s Open Market Policy, China’s economy has seen tremendous growth in GDP and despite it slowly down in recent years, reaching a “new normal”, it still led to the improvement in the standard of living of the Chinese citizens today whereby people have more disposable income. Furthermore, China has managed to lift a total of more than 800 million people out from poverty as of today and has been effective in reducing unemployment rate whereby in 2015 China’s unemployment rate is 4.04%. In addition, Xi JinPing also pledged in the 13th Five Year Plans to end poverty in China by 2020, lifting the remaining 70-80 million people who permanently fall below the poverty line in China. Therefore, with lesser poverty and unemployment, not only does it improves the lives of the people as with employment, people would also receive income and in turn have more disposable income to spend. Thus, allowing them to be able to afford goods and services, increasing consumption levels which improves the country’s overall GDP and economic growth. As such, the CCP is effective in maintaining its economic development given its introduction of newer plans to reduce poverty rates and maintain and reduce unemployment rates. Therefore, in this aspect, the CCP can be argued to be highly effective.

 

  • Effective in international relations

Furthermore, China is indeed effective in managing its challenges in sustaining economic development as in terms of international relations, China can be seen to be making an effort to manage good trading relations with the US. Initially, the relationship between China and the US got off to a bad start at 1949 and slowly worsened, however, in recent years with China becoming the 2nd largest economy in the world, China’s relationship with the US had changed for the better, allowing China to see eye to eye with the US through economic cooperation such as trading and as of 2015, China is the largest goods trading partner of the US. However this cooperation does not come without any challenges, no matter how much China may find distaste in the actions of the US, it cannot afford to severe these ties for the sake of its own modernization due to intensive US investments. Similarly, the US cannot take such ties for granted, with China being the US’s largest foreign creditor today. Likewise, China recognizes its value towards US and thus exploits its economic role in ensuring that its own interests are sustained. Therefore China is effective in managing its challenges of maintaining good relationship with the US and sustaining its economic development.

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