China is the world’s most populous country,
and its economy is second only to the United
States’.
But despite these indicators of a prosperous
future, China has several looming problems
ahead: a stagnate economy, a shrinking workforce,
and a growing elderly population.
So is the “Sleeping Giant” on the verge
of a dangerous economic collapse?
What’s at stake for China?
Since the 1970s, China has instituted a “one-child”
only policy.
This was to help cope with poverty problems
caused by overpopulation.
However, a side effect is that today there
are fewer young people to take care of a massive
aging generation.
In Shanghai, one expert believes that in five
years, a third of the city’s residents will
be over the age of 59.
With a smaller working age population, the
workforce is slowly shrinking.
China’s economy has also suffered in recent
years.
In 2008, their part in the global recession
was coupled with a massive earthquake.
In response to those crises, the government
instituted federal work programs, and housing
projects.
Those stimulated growth, but also came with
their own problems.
Today the surplus of housing is causing property
prices to drop, and the housing market is,
quote, “comatose”.
This is especially dangerous as some economists
estimate that China’s real estate industry
accounts for about 20% of their national GDP.
Additionally, the Chinese banking system is
in need of some policy changes, and is often
secretive.
According to the International Monetary Fund,
“off-balance sheet activities” and “informal
credit markets” have made China’s financial
sector vulnerable.
Their report called for increased oversight
and transparency into the “shadow banking”
world.
The Brookings Institution reported that in
2013, shadow banking accounted for around
43% of China’s GDP.
The country’s growth has slowed to its weakest
point in 24 years - 7.4% in 2014.
Consumer confidence is weak, and municipal
debts remain “dangerously high”, according
to experts.
Currently, one American consulting firm estimated
that China’s debt to GDP ratio is at 282%.
Many agree that China is in danger of a major
economic setback.
Economists note that, in order for their recovery
to be less painful, their economic woes must
be addressed as soon as possible.
Despite their status as a wealthy superpower,
China will face major unavoidable money problems
in the coming years.
China isn’t the only country with a lot
of debt.
To learn about the situation in the United
States, take a look at our video here.
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