China’s economic woes

What an irony, that the economic future of the world depends on the decisions of a few unelected, unknown Communist officials: Lou Jiwei, the Minster of Finance of the Government of Communist China, Xu Shaoshi, Chairman of the National Development and Reform Commission and Zhou Xiaochuan, Governor of the People’s Bank of China. They and a handful of other Chinese civil servants, together with Chinese Premier Le Keqiang are in charge of the second largest economy in the world and what they decide to do in response to the current economic crisis affecting China will in turn influence the economies of the whole world, including the capitalist West.

We should note that since Communist China has re-embraced capitalism and has worked hard to build up a successful capitalist system based on competition and a fairly free market, so they have a vested interest in seeing that the western capitalist system remains successful.  China from the 1990’s was averaging about 10% increase in GDP per year.  This was phenomenal growth that outpaced the West, which had growth figures in the 1-3% range.  But, since China has become the largest importer of Western goods (oil, steel, raw materials, etc.) and the West has become the largest market for Chinese manufactured goods (clothes, electronics, etc.) then the economies have become inter-dependent.

But, economists have warned that such high growth rates cannot be maintained over long periods and finally this seems to have happened.  The Chinese growth rate slowed to 7.3% in 2014 (and less in 2015) and there are other indicators.  For example, the rate of railroad use in China, which measures the amount of materiel being transported from ports inland and around the country has also slowed by about 20%. This indicates a lower rate of industrial production and imports, that indicates to economists that there is indeed a major slowing of the Chinese economy, and this has had ripple effects on all the economies around the world.

As the Shanghai, Beijing and Hong Kong stock exchanges have plummeted, so the Chinese Government has tried to intervene to bolster them.  But, this has not really worked because the fall in the stock markets are a sign of real decline in financial markets.  So then they changed policies and opted to allow the markets to fall.  But, this is very dangerous for the whole system, what if it fails?  I am not a financial expert, I cannot give them advice, but I do hope that these nameless bureaucrats are seeking advice from the leading economists in the US, Israel and elsewhere.  What happens next in China will affect all our pockets.

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