Economics Chinese Growth Essay

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1. Why did Wen Jiaboa adopt a new development strategy? Given this change, what are the problems associated with China's rapid growth? Wen Jiaboa adopted a new development strategy because with the recent financial crisis, China’s export-led growth model showed its vulnerability. China’s exports decreased in the first quarter of 2009 by 25%, which was the first time since 1978 to have no growth. Chinese savings was 51% while consumption was 36%. These issues along with the lack of proper health care and pensions showed that the system would not be sustainable. Chinese growth depended on foreign markets to export to since their own market was not consuming. This vulnerability would make Wen Jiaboa adopt new policies to encourage domestic demand and invest in new infrastructure to create balance in the 8% growth in GDP. We noted in the discussion in week one that when a country has one product that dominates the export market they open themselves up to more risk. China exports a variety of products but they just export and have not grown infrastructure or created social programs at the same pace as the last 30 years of 9% growth. The changes made by Jiaboa brought challenges from global companies who complained about the nationalistic measures that resulted in unfair trade and investment restrictions and exchange rate price fixing that hurt American companies.

2. Why is increasing the share of private consumption as a percent of GDP such a controversial issue among the Chinese leadership? China has 1.3 billion people and if they begin to increase the share of private consumption then they will have to increase the amount of raw materials they import which can become expensive, as some are limited. The increase usage in the automobile is requiring China to import 5.3 million barrels daily, which could increase in 2030 to 12 million barrels. I think the income disparity is also an issue for the change to private consumption instead of the government providing for its citizens. The article attached shared some interesting insights on the Chinese change in economy to a more sustainable model with private consumption being one area of focus. However, with increased prices, the majority of Chinese citizens cannot afford houses or other products and have to take out loans with wealthy individuals that
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