China economy and its challenges for the year 2011

China economy and its challenges for the year 2011

In the 2011 China economy will continue growing, but probably less than the 10% rate that it achieved in 2010. The world economy is recovering but clouds remain in Europe. China will anyway grow at around 8.5% to 9% range. The government could make up for the slack in external demand by encouraging internal consumption.

But inflation at home is a risk, especially in energy and food items, so the government has to deal carefully with that.

It is expected that in the year 2011 the government will continue its measures to try to reduce the disparities in income of the urban and rural sector (to lower the high Gini index), increase the energy efficiency of its industries, and should try to reduce the dependence of China growth in external markets. These are some of the challenges for the Chinese economy.

In 2011 China will continue its economic integration with its Asian neighbours, propelled by the signing of FTA agreements.    

In summary 2011 will see China growing but matters like trade imbalances with some of its partners will continue in the discussion agenda.    

China economic growth is welcomed as it is a major force in the world economy, and especially countries in the developing world need it as China demands a lot of raw materials for its industrial machinery and food for its enormous population.  

A bigger challenge for China is the theme of its currency that many countries claim it is undervalued and ask for its revaluation.

It is in the interest of China that its currency increases in value, but this should be done little by little, so not to hurt its export industries. The appreciation of the Yuan will not solve the trade imbalances with some partners but could increase the standard of living for Chinese citizens, by allowing them to buy cheaper things from abroad and could help reduce the inflation at home. Also the appreciation of the Yuan will somewhat reduce market intervention and the stockpiling of foreign exchange reserves.

A good part of what China exports is the assembling or processing of inputs from abroad, like the famous iPad, where China added value on this item is less than 10%, so this has to be taken into account when considering trade imbalances.