|A Prosperous China Benefits the World|
The world economy has had an unpleasant start to 2016-global stocks are slumping, oil prices hit a 10-year low, and the values of currencies in emerging markets have been very volatile. Sadly, for no logical reason, China is often used as a scapegoat for current global market fluctuation.
It is imperative that people are clear about the reality behind the world-wide economic volatility. There are four points that help clarify this phenomenon.
For one, China's economic growth remains strong and its contribution to the world economy remains impressive. According to the World Bank, between 2009 and 2014 China's GDP grew at an average annual rate of 8.7%, while average world growth was 2%. In that same period, China was the stimulant behind 30% of global economic growth. In 2015, China was still one of the largest and fastest-growing economies, with a growth rate of 6.9%, and it contributed 25% to global growth.
This is in large part because the middle class has been the driving force of consumption in China. According to Credit Suisse 's most recent Global Wealth Report, China's middle class (individuals with wealth between $50,000 and $500,000) now ranks the largest in the world with 109 million members, surpassing the U.S. with 92 million members. According to the Boston Consulting Group, China has by far the most private wealth in Asia, and ranks second only to the U.S. globally. To meet the resulting growing demand, foreign companies are looking to expand into China. For example, Starbucks is planning to open 2,500 stores in China in the next five years-500 a year.
The fluctuations in the Chinese stock market have been of great concern to many, and understandably investors were unnerved when the stock market declined 20% in the first month of this year. Undoubtedly, there is room for improvement in market management, but China's real economy in the long term has not been harmed since the stock-market turmoil began last August.
It's important to remember that China's stock market is still developing-its value is about 30% of China's total GDP, compared with 100% in the U.S. For this reason, China's stock-market ups and downs shouldn't be taken as reflective of general sentiment about the Chinese economy or its overall performance.
The depreciation of the yuan has been a favorite focus of the media recently. Major news outlets have implied that the Chinese government has intentionally devalued the yuan to boost exports. This claim is false. While the economic slowdown has contributed, China's currency depreciation is mainly the result of an exchange-rate reform launched last year to follow international standards and to establish a more flexible system linked to a basket of currencies, thus letting markets play the decisive role. This has nothing to do with boosting exports.
The reform worked. Recently the yuan has appreciated significantly against both the U.S. dollar and the basket of currencies, showing its value can rise and fall. As former U.S. Treasury Secretary Lawrence Summers explained in the Washington Post last November, it is incoherent to favor both financial market liberalization in China-with more reliance on market forces-and exchange-rate appreciation.
Meanwhile, for commodities, there is still significant demand among Chinese consumers. Between January and November 2015, China imported 112 million tons of grain-an increase of 27.3% from 2014. That included 25% of U.S. beans and 40% of U.S. cotton production. Crude oil imports increased by 8.8%. The downward pressure on oil prices is largely attributable to competition for global market share between traditional oil suppliers and new shale oil producers. The lifting of sanctions on Iranian oil exports has also contributed to lower oil prices.
Structural reforms will bring a brighter future to China's economy and, consequently, greater opportunity to the world. A large Chinese stimulus package in 2008 played an important role in preventing the meltdown of the world economy, but also led to the serious problem of overcapacity and structural imbalance in the Chinese economy, which has contributed to the current economic slowdown. To sustain growth, China is implementing structural reforms that place greater emphasis on developing an innovation-and-consumption-driven economy. China's 13th five-year plan lays out five clear development concepts: innovation, coordination, green development, opening-up and inclusiveness.
Structural reforms are never easy and come with risks. Yet China's leaders are determined to see them through. China is, in fact, playing a pioneering role in the structural reform that the global economy desperately needs, hence it should be applauded and encouraged.
A prosperous China benefits the world. As the host of the 2016 G-20 summit, China is ready to work with the rest of the world to pool wisdom, advance international economic cooperation and improve global economic governance to achieve strong, sustainable and balanced growth. As the two largest economies in the world, China and the U.S. have an important role to play.