café babel: China: The Dark Side of the boom

café babel

China: The Dark Side of the boom

Hardly a day goes by without the business press painting China as the world’s next superpower. What exactly is giving rise to these hymns of praise – and are there really grounds for the euphoria? For many years, India has been the darling of western businesses, who rushed to outsource services and aspects of production to the Indian subcontinent. However, in recent years, India has gained a competitor: China’s seemingly inexorable rise as an economic superpower threatens to leave India behind. So is China’s economic boom really unstoppable? Can the national economy of the Middle Kingdom continue this rapid trend of growth and supplant the established economic powers of the United States and Europe as world leader? It is worth taking a closer look at the data. It is true that China’s gross domestic product (GDP) is skyrocketing ahead of the big economic powers. It has quadrupled its GDP since 1978 and annual growth has remained for years at around 9%. However, if one looks at per capita distribution of GDP, China emerges as a poor country: with $5,600 per capita, it ranks 121 st in the world. By way of comparison, the US produces a GDP per capita of $40,100. Foreign direct investment (FDI) is also a double-edged sword. Indeed, growth has been stimulated by the steady increase in FDI. However, this means that China’s economy is now particularly dependent on foreign cash flows. China’s banking system is a further source of economic instability. For many years, the former state banks have propped up the sickly state enterprises with credit, in order to minimise job losses. Now the banks have to shoulder a great deal of unpaid debt. Environmental pollution could also put the breaks on economic development: air pollution, soil erosion and the steady retreat of water tables in the north are problems which are getting worse. Presently China combines the disadvantages of both communism and capitalism: with communism comes bureaucracy and inertia, while with capitalism comes growing disparities in income and rising unemployment.