Article by Capital Trust Markets

Since the commencement of China’s Reform and its entry into the World Trade Organization in the year 2001, increased rates of consumer spending have radically widened the productive capacity of the Chinese economy

Since the commencement of China’s reform and its entry into the World Trade Organization in the year 2001, increased rates of consumer spending have radically widened the productive ability of the Chinese economy.

While on one hand, high investment spending led to an increase in the Chinese production capacity, on the other hand, it facilitated the migration of agricultural laborers from rural areas in large numbers to the industrial and services sector. This resulted in a sustained growth in China’s household consumption.
In terms of size, the Chinese economy is the second largest economy of the world. The economy in recent years has grown tremendously and is now the principal driver of the global economy. Along with the slow recovery of the US economy and the uncertainty of the Euro-zone, the global economy is becoming increasingly dependent on China for growth.

While Beijing’s unexpectedly strong economic rebound may appear astounding, it has largely been derived from a combination of the government’s economic stimulus package and progressively rising consumer demand.

China’s economy is beginning its historic shift to a more consumption and service driven model that is expected to sustain the growth of the country over the next decade. Even though the investment sector that has been the historical driver of the Chinese economic growth and is expected to continue to account for a significant portion of the country’s Gross Domestic Product in the next few years, new government policies are helping the economy move in this direction.
As the global financial crisis fades, Chinese leaders are realizing it more clearly that in order to achieve sustainable growth, consumer spending needs to be unleashed. PRC has already started taking measures that are intended at shifting the focus of the Chinese economy towards consumer products

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People’s Republic of China was mainly an export oriented economy until past year. The foreign demand for Chinese consumer goods helped the Chinese economy grow at a very fast pace. Nonetheless, as the global recession and the credit crisis affected the Chinese exports, the country implemented a stimulus plan US$ 706 billion, that heavily focuses on infrastructure spending and increasing individual levels of consumption by offering subsidies on goods.

People’s Republic of China in recent years has become the fifth largest consumer market of the world after the US, Japan, Germany and the United Kingdom due to increased consumer spending. While private consumption in China reached $ 890 billion in the year 2007, these figures are expected to grow substantially in the coming years.
The country has outpaced some major economies of the world and has more recently become the second largest economy of the world after the United States. Compared to the level of economic reforms and the population of the country, the Chinese consumption to GDP ratio is approximately 36% (this ratio is only about half that of the US and about two thirds of Europe and Japan).

But during the past few years, Chinese consumers have regained confidence in the promising economic outlook of the country. These consumers are drawing down their savings and spending more of their disposable income. This trend is stimulating a sustainable revival of a number of Chinese sectors such as automotives, real estate, machinery and retail sectors. This strong renewed demand among 1.3 billion Chinese consumers is becoming an increasingly crucial economic force in the country. According to the latest projections, Chinese consumer demand will rise from 8% of global demand to 31% of global demand by the year 2020. The share of the US in the global demand in the meanwhile is forecast to shrink from 30% to 21% over the same period.

The Chinese economy is undergoing an intentional massive transformation from an export dependent/production based economy to a consumption based economy fueled by its own internal growth.
Beijing’s quicker-than-expected recovery has raised questions over whether this rapid recovery, so far stemming mainly from the government’s huge economic stimulus package, is sustainable in the long-term. It is believed that once the impact of subsidies used for car purchases and appliances wear off, critics assert, the surge in consumer spending may vanish.

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Capital Trust Markets is an online Forex Brokerage, offering a flawless trading environment to traders of all types. The world class trading infrastructure – backed up by advanced trading tools and cutting edge trading software and technology – is combined with award winning customer support to provide a highly successful blend of customized trading solutions.

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Capital Trust Markets is an online Forex Brokerage, offering a flawless trading environment to traders of all types. The world class trading infrastructure – backed up by advanced trading tools and cutting edge trading software and technology – is combined with award winning customer support to provide a highly successful blend of customized trading solutions.













Use and distribution of this article is subject to our Publisher Guidelines
whereby the original author’s information and copyright must be included.

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