China's Glass Ceiling

 

                China has seen roughly 32 years of economic prosperity brought in by governmental reform under the leadership of Deng Xiaoping. Considered to be the architect of the Chinese economy after the death of General Mae Zedong, Xiaoping adopted a policy under the idea that, “Black cat, white cat, what does it matter what color the cat is as long as it catches mice?” With such a metaphor in mind he brought an average annual 10% growth in GDP from 1979-2010. Unfortunately, 32 years later from Xiaoping’s reforms, the cats have grown old and tired bearing the weight of old economic practices.

                In 1979, Xiaoping pushed through new economic policies that would initiate ownership incentives for farmers, establish economic zones to attract foreign investment, boost exports, import high technology products, encourage citizens to start their own business, and decentralize economic policy making. Prior to 1979, China’s real annual GDP growth was estimated at 5.6%. After these economic reforms were enacted China was able to double in real terms the size of its economy in real terms every eight years. The biggest factors in this were its large capital investment from foreign investment, savings percentage, and rapid productivity growth. Chinese foreign direct investment (FDI) grew from $2 billion in 1985 to $92 billion in 2008 while Chinese gross savings as a percentage of GDP rose to 53.9% in 2010. As a comparison, the United States gross savings as a percentage of GDP in 2010 was 9.3%. With the influx of foreign investment and the savings rate kept so high it’s not difficult to see how their economy grew so quickly. But what made it fall?

                Economic policy has changed in the 21^st century. Innovation and entrepreneurs are now at the forefront of economic sustainability and that’s unlikely to change anytime soon.  China’s major problem lies in their state owned enterprises (SOE). SOEs make up roughly 45% of the country’s economy; however, they act as a major barrier to innovation and entrepreneurs. With the state controlled system it increases the real estate values and deters foreign investment: two factors that can easily destroy a small business starting out. China was always known for importing parts and they’ll export the whole since labor was so cheap, but this is not how a small business works. China has recently made a push to encourage entrepreneurs by creating a $2.5 billion fund to lend to small and medium sized businesses along with relevant tax breaks. This is a great stride for small businesses but the struggle still comes with the looming real estate inflation bubble that could pop at any moment. 

                “China 2030,” an economic report produced by the Chinese bank and a government think tank, is due to be released on Monday, February, 27^th.  This report will hopefully contain guidance on economic sustainability for China.  This comes at a crucial time as their 2011 Q4 GDP was at its lowest in two and a half years at 8.9%. 32 years of strong economic growth have finally started to cool off. It’s time for the Chinese government to move in a different direction to get pass their current economic barrier.

Our Nation and Economics

With the political debates well on their way, our nation's ten year anniversary of the 9/11 attacks honored, the official ending of the war, and, of course, the return of the NFL, life would seem pretty good right now for the American public. Well, life is almost pretty good. Let's not forget the difficult economy, the lack of jobs for the middle class, and social security's struggling financial problems for the baby boomer generation. There is a solution to all of this and it doesn't have to wait until the 2012 election where the nation determines its leader for the next four years. It's called saving. When we were kids we understood this principle with ease. We were never reminded that we had to put our quarters in our personal piggy bank in order to save up for the new Batman toy or Barbie doll. Even at such a young age we learned to be economically efficient. We saw what we wanted, we saved the money to achieve it, and we got it when we earned it. Now is the time, more than ever, that we must go back to our roots of saving money when possible.

The new jobs bill that President Obama has presented to Congress is a great start to a bill to get the ball rolling for a struggling economy, however, every time I hear our President declare the cost of this operation I shiver. $447 billion dollars to create jobs and tax cuts. Certainly not your average amount in a child's piggy bank. So what's the best strategy for creating jobs, lessening our national debt, and moving forward out of economic difficulties? Save. It's a simple idea but people need to realize the power it holds. It's often speculated that big corporations are fixing policy to provide for their own selfish demands. Aha! So there's thought to be a correlation between money and power? So if we have money we gain more power? Well, if this is true, then why wouldn't we want to hold onto our money instead of throwing it away? Save, save, save.

As the 2012 elections approach I believe it's important that we keep in mind the candidates' strategy to reducing costs, saving money, and still being able to produce the same results. Now the results will never be free of charge because we all know nothing is free and the money has to flow from somewhere; but if we are able to reduce the need for our government funding then perhaps our economy would be on its way to a better future. Many nations around the world are struggling to make sense of down economies but these issues can be solved with a basic understanding of what the term "economical" means. America needs to be more economical with its money.