Over the last decade the policies implemented by the Chinese authorities have had an unrivaled short-term impact on the global economy. These effects include: very high mineral and oil prices; significant amounts of foreign reserves; deals with countries in Africa to secure resources; pollution levels that are unparalleled by any time in history.
Historically China’s economic model was based on export-led growth, massive government injections into the economy and access to cheap money. For instance the Chinese authorities have artificially created growth – as well as building ghost cities –
in that a seven year old bridge (built to last for 40 years) was blown up and rebuilt. This generates jobs for construction industry, including contractors for different aspects of the bridge.
Impact on the Global Economy
As an economy of 1.35bn people (approximately 20% of world population) rapidly industrialises and urbanises it requires a vast amounts of food and non-food commodities. The global market for bulk commodities shows the enormous consumption levels of China and ultimately this led to global commodity prices to treble. (See table above). Another impact is the size of China’s foreign reserve assets and their relationship with the value of China’s currency – the renminbi. China has abandoned its pre-2005 practice of fixing the renminbi against the US dollar, but now uses a flexible peg against where its value is allowed to change. Although there has been some appreciation of the renminbi it is still seen as undervalued against the major currencies – Euro, Yen and US dollar.
The above is a brief extract from an article published in this month’s econoMAX – click below to subscribe to econoMAX the online magazine of Tutor2u. Each month there are 8 articles of around 600 words on current economic issues.