China, the World’s Largest Economy- With Limits

The commercial Chinese trade in 2013 exceeded, for the first time, 4.000 billion dollars, making the Asian giant the first commercial power in the world. In fact, in 2013 the total exports and imports from China reached USD 4.16 trillion with an increase of 7.6%. More specifically, China’s exports increased by 7.9% to 2.21 trillion dollars and, at the same time, imports increased by 7.3% to USD 1.95 trillion, showing a positive trend in inner demand.
According to experts, at this point, the People’s Republic of China (PRC) is the new world power. From a Western point of view this expansion can be an advantage for everyone, in fact, the emerging Chinese middle class that has more than 200 million households, is a huge reservoir of purchase and demand that are constantly growing.
In just three decades, China has managed to slowly leave behind the game of Mao’s primitive communism and become the largest economy in the world. It all started with the liberation of the peasants and the special economic zones, in which they produced mainly simple goods for export. Then, in the 90s there was an unprecedented building boom that affected the infrastructure and large urban areas. China has thus become the world’s factory and in 2009 it achieved a surplus of USD 200 billion in trade with the U.S. The exchanges, which in the year of 2000 accounted for 3% of the global exchange, are now at 10%. A change was also the type of exported goods that they were dealing with, ranging from textiles and petroleum to technology.
But what are China’s limits?

You cannot understand China if you do not understand the many faceted realities that characterize this vast country. The People’s Republic of China is both an industrialized nation that is evolving and a contradicting country in the developing world. About 800 million people still live in poverty or misery. In recent decades, the imbalance of wealth between regions such as the industrialize coast of southern China, the cities of Shanghai and Beijing, and the hinterland that has been neglected for centuries, has been increasing.
The PRC is theoretically devoted to socialism, however, in reality, many of the private sector, which contribute about 70% of the country’s GDP, are much closer to the capitalism of the XIX century. China aspires to achieve international recognition as a market economy. But this is only one side of the story; in China, the absolute primacy of politics over economics prevails.
If one considers the state finances and foreign exchange reserves, China has big advantages, especially compared to Western welfare states, but it should not ignore the weaknesses of its financial system. The Chinese banking sector is dominated by four major commercial banks in majority state: Industrial and Commercial Bank (ICBC), Bank of China (BOC), China Construction Bank (CCB), and Agricultural Bank of China (ABC). These four banks are, in reality, the financial arm of the Communist Party, which decides policy and commercial lending, especially in all areas related to state economic sector and the strategic objectives of the country.
Despite the impressive achievements in economic reform, China also reveals many other dangerous and weaknesses: the delay of these reforms, the lack of rule of law and the potential for social instability. Although for a long time the economy and society have evolved with respect to the conditions of what China once was at the time of Mao Zedong’s death, the political system has remained unchanged and the one-party dictatorship remains at the helm of the country.
The process of modernization is also limited by the absence of a legal system that ensures the rule of law. This is not only an obstacle to the effective protection of human and civil rights, but also to the economy. Without the rule of law there is no legal certainty, which is of vital importance for joint ventures, investments and contracts of employment or provision.

Erika Sciarra.

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