China’s Financial Position IN Three Years Time

over the last decade China’s Economy has increased tremendously but this is under threat since they have been facing several stumbling blocks over the past for years. Some of the stumbling blocks include trade war between itself and the USA, policies, local government debt and recently the outbreak of corona virus. China’s Economy is largely build on technology and industrial strength. China together with the USA is considered to be among the leading countries that release large amount of carbon (IV) oxide into the atmosphere due to their intensive industrial networks. China collects a large percentage of its revenue from exports. During the 2000s China only exported a meager 12% of its products to the USA but as of 2010 her exports had risen to 40%.

Trade war and International relation

USA-China relations have hit rock bottom but there is still hope that these two countries would reach an agreement. So far the Trumps administration has hit tariffs on Chinese goods imports worth $250 billion and China also did retaliate by levying tariffs on similar amount (Steinbock, 2018). This scuffle between the two countries could end up in global crisis integration. Taxes and tariffs make it difficult for manufacturers to operate their business since this reduces profits. If the manufacturers are making losses the effect could trickle down to the consumer that is, the price of commodity would be increased to cover the tariffs and taxes.

Corona Virus

Many countries have pulled out their citizens out of China as well as cancelling flights to China. Disruptions of transport affect the movement of people and goods freely which threatens business enterprises. The Chinese government has vehemently denied that its Economy will be affected by the outbreak however, this is not true (Messamore , 2020). Since the outbreak, China’s stock market has crashed. On 8^th February after the end of  the lunar holiday, the Chinese benchmark CSI index had crashed by 9%.That was considered to be its worst setback in at least a run of 13years.The epidemic has not yet been contained and if the is continuous spread of the disease there is a risk of accruing massive losses.

Structural transformation

In many leading world economies there comes a time when industries and environmental issues should be coherent. Manufacturing share in China’s Economy has been shrinking since the global economy crisis and as of 2015 the GDP had decreased to 27% (Boulter, 2018).Despite this percentage being higher that that of other leading economies there is a risk this percentage will not rise. A decrease in potential is due to excess capacity and manpower. The government also faces economic aggression from other leading powers such as the USA since their Economy has increased immensely. Also some sectors have got increased supplies such as the steel industry while other sectors such as health lacks supply.

Monetary policies

Monetary policies can boost the collective demand in the short term but there is a risk that such impact cannot be sustained. When potential output is driven by lower growth compared to widening output gap, macro policies which are overly-stimulative can lead to relentless imbalances (Guofeng, 2017). China operates on a neutral monetary policy which is not a great system’s, great monetary policy should neither be too tight nor too loose in terms of risks associated with high leverage.

Leverage

China’s leveraging resulted in corporate debt levels to increase between 2008 and 2009 and it effects continued to increase. The debt levels of corporate in the GDP increased by 50% over a period of eight years (Boulter, 2018). Increase in corporate debt forced the government to come up with policies such as mergers, bankruptcies which was aimed in reducing overcapacity and debt restructuring. This policies risk the growth of SMEs to full potential as they are likely to be acquired by large companies.

Local government debt

The increase of local government debt which has high interests creates a risk to the country’s GDP. Towards the end of 2017 the local government debt had amounted to 29.95 trillion Yuan, of which local authorities have raised 16.5 trillion Yuan through bond issuances since 2015 (Woo, 2018). Based on the levels of debt in local governments the country requires at least 10 years to deal with this menace. Considering its trade war with USA it economy could succumb due to outflow in money circulation.

References

Boulter, J. (2018). China’s Supply-side Structural Reform| Bulletin–December Quarter 2018. Bulletin, (December).

Guofeng, S. (2017). China’s Economy and Monetary Policy.

Messamore, W. (February, 2020). Coronavirus massacred its Economy – but China’s still lying about it. CCN. Retrieved on February 20, 2020 from https://www.ccn.com/coronavirus-massacred-its-economy-but-chinas-still-lying-about-it/

Steinbock, D. (2018). US-China Trade War and Its Global Impacts. China Quarterly of International Strategic Studies, 4(04), 515-542.

Woo, R. (October 2018). China local governments’ hidden debt could total $5.8 trillion: S&P.Reuters. Retrieved on February 20, 2020 from https://www.reuters.com/