New Chinese Economy Makes Waves at Home and Abroad

New Chinese Economy Makes Waves at Home and Abroad

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    China is Investing in the World

    From steel to start-ups and farms to finance, China’s economy is shifting, and the gaps created among citizens and countries are becoming bigger. “New China” is definitely leaving winners and losers in its path.

    Transitioning Economy

    China has traditionally focused on heavy industry areas, such as coal and steel. However, over recent years it has shifted towards services and consumption, like technology and finance. Many experts believe these changes will lead to a more stable economy and set China up to participate in the global economy of the future. China will soon be investing more outside the country than inside. The move sets China up for a more prominent spot on the global stage, but the transition hasn’t been completely free of issues.

    Geopolitical Effects

    Along with China’s new economy comes new political influence around the world. China is now the largest provider of credit to developing nations, a position that has long been held by Western countries. At the end of 2015, China had invested a staggering $870 billion around the world, with the United States getting the most of the money. Since 2007, China has invested $72 billion in the U.S., with an increasing amount going to capital investments such as real estate and commodities. Australia and the U.K. have also received large investments from China, largely in real estate and metals.

    In total, more than half of China’s recent global investments have been in the energy sector. China has been looking for a stable foreign energy source for years to keep up with its high growth rate. In 2013, the country imported 60% of its oil and 30% of its gas, much of which comes from developing countries. By investing large sums of money in these struggling or stagnant economies, China asserts its global power and can create worldwide partnerships.

    China is by far the largest investor in Africa, far surpassing the International Monetary Fund for money owed by many countries in the region. China’s billions have largely gone to infrastructure ($20 billion in 2015 alone), but also include substantial amounts to funding education, medical, and manufacturing projects. In exchange for the money, China often receives raw materials, such as raw oil from Angola, to help its own manufacturing sector. While the money appears to be benefiting African nations, the practice might not be doing much to stabilize the economy, as few jobs are required to ship resources to China.

    “We lose all the job creation opportunities, because all the jobs are still made by Chinese in China,” said African research fellow Joseph Onjala.

    China is also a major lender to Venezuela, Argentina, Bangladesh, and Pakistan, among others, largely to energy projects. However, an increasing number of experts and citizens are questioning China’s motives and integrity in offering money in exchange for resources at what they see as unreasonable terms. But because many of these countries are relatively desperate for outside funds and an economic revival, they accept the assistance willingly.

    Domestic Effects

    Although many experts believe the shift in China’s domestic economy to more modern, tech-friendly businesses creates a more stable economy in the long run, it is also creating a widening gap between people in the country. China is one of the most unequal countries in the word, with the richest 1% of people owning one-third of the country’s total wealth. And as new, tech-savvy industries grow in the country, that gulf is expected to widen. Take for example the metropolis of Shenzhen, where tech and finance companies are booming. In the last year, real estate prices in the city have boomed by 60%, the fastest in the world. Meanwhile, steel mill-dependent province Liaoning is facing a recession due to its outdated industry.

    The divergence can also be felt in the workforce. In 2015, 90% of new billionaires in the world came from China, more than from any other country. On the flip side, 1.8 million coal and steel workers are expected to be laid off in China this year. The signs of a changing and diverging economy are everywhere: highway transportation, typically used by blue-collar workers, is down 19%, while international air travel, the preferred mode of transit for the rich, is up 11%.

    Diverging wages and lifestyles have long been an issue in China. Nearly half (44%) of the population lives in rural areas with an average income of $1,620. White-collar workers in new industries in more urban areas make three times that much and tend to have better schools, healthcare, and resources available to them.

    Plans for the Future

    China continues its economic push towards the future, with an increasing amount of government-sponsored finance, banking, and technology jobs, but the country can’t forget the millions of rural residents living on much less. As the gap widens, it is also creating tension throughout much of the country. Between 2014 and 2015, the number of strikes and workplace protests doubled to a record 2,774. The government is providing financial assistance to laid-off workers, but the money only goes so far, as many laborers can’t transition to a new, modern career without training or resources. In order to keep workers happy and contributing, many people believe the government needs to step in and relax long-standing policies relating to migration, job training, and housing costs, which can be a stumbling block for many rural workers trying to transition to new urban industries.

    Globally, China doesn’t show any signs of slowing down its international lending efforts. As its domestic economy continues to improve and industries grow, there will be more need for resources from other countries to keep China moving.

    China’s new economy has proven successful both internationally and domestically, though not without issues. As the country continues to assert its financial lending dominance around the world, it could lead to more global partnerships, or to unhappy debtors. At home, the gap between the rich and the poor is increasing at an alarming rate and could have long-term effects. The new China is leading the world, but at what cost?

     

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