Another Economic Bubble Burst Ahead - China? (Part 3)

In the second part of this article, the author has drawn on some of the positive and negative consequences of China's pace of economic growth. Now, in this final article the author continues with the implications of economic growth and changes that must be done and the cooperative effort needed to prevent future economic failures.

Judiciously, to allay the fears of skeptics and accelerate strategic investments in the international arena, the Chinese government have to do with the parameters of political and economic freedom in particular corruption, which is a real murderess of economic growth, as shown in second part of this article. Meanwhile, it is expected that China's strategic investments in the developing and underdeveloped world would increase because of his estranged relationship with the Western world. Moreover, with the Chinese government and investors lose interest in investing in Treasury securities to lower U.S. interest and bond mainly due to imbalance in tax (which is huge U.S. deficits) and the collapse of the dollar, Chinese investors may be forced to pursue a new direction towards investment. Unfortunately, such a reorientation of investment has a negative impact on the deficit of the United States whose source of funding is primarily through the sale of Treasury securities and obligations to these investors. As a matter of fact, a higher percentage of massive foreign debt of the United States is signed by China.

Consequently, a reduction in purchases of U.S. securities would lead to an increase in interest rates could in part influence the investment industry in the United States, exacerbating the unemployment situation. Moreover, it seems China is under pressure in recent years to distance themselves from the United States and its main trading partner to pursue its ambitious economic agenda. For example, in 2005, China has decided not to-peg its currency the renminbi (whose basic unit is the yuan) from the dollar and let it float followed by the revaluation of the currency. In addition, last year China with the BRIC countries (that is Brazil, Russia, India and China) have tried to convince the world about the volatility and incompetence of the U.S. dollar as a world currency confidential and the need for a switch to another currency. Presumably, the dependence of the external debt of the United States on China should be a cause for concern for both countries because of its propensity to transfer power from the U.S. to China. All these developments are a harbinger of what is in the works.

The next issue of concern is the effect of its population on the sustainability of its economic growth. There is great disparity in income and purchasing power among the urban rich and rural poor in China. Consequently, the urban contribution to the percentage of wealthy domestic demand far exceeds that of the rural poor. These factors coupled with demographic and migration report of the United Nations predicts that by 2015, the percentage of urban and rural population, would be nearly identical (50% each) demonstrates the need for strategies to bridge the difference in purchasing power.

Thoughtfully, it would be necessary to start other projects in rural areas to improve their lives so that their contribution towards domestic demand may be parallel to that of urban people. Remember, a preliminary analysis in the first part of this article has revealed that a higher portion of GDP growth comes from domestic demand. That supports the idea that if China is to maintain its economic pace in the midst of global recession in demand for exports, then it should have closed the gap in living standards between urban and rural people.

Another topic worth acting on is the energy requirement. Environmental pollution problems are imminent if we consider China's growing energy needs. As it is currently over 70% of its energy comes from coal and natural gas and renewable sources of energy and potential contributors to acid rain formation and global warming. The growing energy needs suggest an increased dependence on oil and coal. However, the country can not continue to depend on non-renewable energy sources for the supply and should consider stepping up its investment in renewable energy to deal with any future environmental disasters. The growing international pressure on countries to pursue environmentally friendly practices including effective measures of industrial costs and responsibility for carbon emissions should gravitate to the concerns of Chinese authorities.

Indeed, in the past, the environmental cost was trivial and the contribution of the cost of damage to the environment on the operational cost was negligible. The story should change with the climate change conference just concluded in Copenhagen, as several nations operating cost increase due to the active involvement of environmental costs in the cost of doing business. Meanwhile, some austerity measures may be required by China. For example, the country should strengthen its regulatory framework in order to regulate effectively and efficiently the growing industrial and manufacturing sector. Remember, China is second in the U.S. in industrial and manufacturing sector of the world. Obviously, effective regulatory measures would increase costs, but it's worth it for the Chinese people and the rest of the world. Studies show that the forms of pollution costs about 7-10% of GDP in China every year. This means that if the country is to pursue effectively policies of the United Nations recently agreed, that cost would definitely increase operating costs and lower expected profits.

Another factor that must be considered is the need for human capital the key to increased productivity and sustainability. Behind the delay of human capital can considerably slow down productivity as experienced by a country like Denmark at the time. In reality, there is a causal relationship between productivity and human capital. Therefore, if China is to keep up with the pace of economic growth then there is the need to revitalize its education sector to enhance its human capital. It 's true that China is advancing in technology with a view of the world, but this is only sustainable with increasing level of human capital that is part of the foundation of productivity. In addition, human capital is essential to innovation, entrepreneurship, research and development all the main promoters of productivity. Innovation is essential in the energy and infrastructure to meet its growing energy needs of urbanization and its programs.

Now, despite some negative connotations associated with economic growth, China should be commended for achieving this high level of economic growth. With the highest amount of foreign reserves and recently overtaking Germany as the world's largest exporter in 2009 is a commendable result that symbolizes China as an economic superpower and even a brand new hard-working nation. The fact is that no country can achieve such a status badge, without breach or breaches international small. Ultimately, what the West wants to see China to respect the commercial laws and the like, they should also be ready to work with the country to ensure the sustainability of its economic growth. And 'an indisputable fact that China is now the locomotive engine of the global economy, with strategic investments around the world whose tentacles permeate even the most remote areas of the world. So, any expert in the way it works a train the trainers would tell you what happens when the engine or not derail. In reality, there is a high probability of derailing or even coaches, in the absence or if the engine derailed. Therefore, any failure of the Chinese economic system would spread pervasively to almost all economies in the world by sending the world into another era of recession.

By now, the world has learned from experience the impact of the failure of the U.S. economy plunged the world economy in recession and would not want a repeat of this event in China. That's not forget the fact that, as no economy was immune to the effects from the U.S. case, it is no economy in the world for the unexpected should happen in China. Therefore, China would need the assistance and cooperation of the world, especially the major economies be able to control its macro-economic and political factors to ensure the sustainability of its economy and prevent super-heating economy, which is earlier a burst of economic bubble. There are some who believe that all the occupations of China aims to marginalize the United States and Europe and would like to be pessimistic about the future of the Chinese economy. However, divided we fall united we stand. Passivity is the key.

Finally, I would not want to finish this article, without clarifying the fact that achieving such a status of economic leadership in manufacturing, technology and, possibly, the financial sector can be coupled with the achievement of superior military power. In fact, more than military power is largely a consequence of the adoption of a superior military technology. Thus, the propensity to adopt an economic superpower and use their leadership know-how to create a superior military force, is inevitable. Another dimension of technological leadership is the ability to infiltrate the military system of another country or security systems or, better yet hack the system.

Conclusion

Several empires have come and gone and unfortunately the disappearance of these empires called bubble economy has often sent economic shock waves to the rest of the world. In the light of these developments and the world wonders if China reigning economic empire would follow the same fate. Macro-economic factors that describe the Chinese economy, namely GDP, current account balance, CPI, inflation and foreign exchange reserves are currently favorable. Superficially, it is possible to think that the pace of China's sustainable economic growth and there is no cause for alarm. However, a critical look at the economy reveals the need for a revision of its policies governing its economic freedom, political freedom and its international resolutions, each of which may gravitate toward the opening of an economic bubble burst. The absence of long-term that could scupper the current pace of economic growth with reverberations to the rest of the world. Finally, it should be emphasized that China can not do it alone and would need the cooperation of the world, particularly the major economies to ensure the sustainability of its economy and the world ....