A period of unprecedented growth and improvements in living standards
- Thursday, December 12, 2019
Last October marked the 70th anniversary of when the Mao lead Communist Party took power in China in 1949. The past four decades particularly have been a period of unprecedented growth and improvements in living standards of millions upon millions of Chinese. In 1981, 90% of Chinese citizens lived in extreme poverty. In the past 38 years, that figure has fallen to 2%. Due to this wonderful expansion, China is now servicing a national debt level of 300% of the country’s annual income and official figures have confirmed that GDP growth is at its slowest rate for 27 years.
The great turnaround in fortunes in China started in the 1980’s by then Premier Deng Xiaoping who started free-market reforms with the beginning of red capitalism and massive investment in infrastructure and manufacturing. GDP per head has risen from US$200pa in 1945 to over US$10,000pa today. This is considered the fastest sustained expansion by a major economy in history with growth averaging 9.6% per year.
China used to deliver cheap labour on a massive scale, but as the county has grown wealthier so have wages. The country is now losing its competitive advantage to countries like Vietnam. China is also challenged by its ageing population which is a consequence of its one child policy. China’s working age population has been falling since 2015.
China’s year-on-year growth has fallen from 6.7% in 2018 to an expected 6.3% for 2019. Analysts believe the real figures are lower than the official figures and that the slowdown has not yet ended.
The Chinese authorities will be faced with difficult decisions if they wish to stimulate a growth recovery with the national debt standing at 300% of GDP. So far, Beijing has used tax cuts as an incentive to get the economy moving during the trade war with the US.
The protracted trade dispute with the USA, slowing growth, greater international competition and an aging population are all challenges that Beijing will have to address in the years ahead.
Chris DaviesChartered Financial Adviser
Chris is a Chartered Independent Financial Adviser and leads the investment team.