Since 1980 the chinese economic growth has surpassed all other nations in the world. Financially, the price for growth has been a very high debt-load and a monetization of the economy. The growth has also resulted in large structural over investments in properties and transport infrastructure. Similarly there has been under investments in water supply, environmental protection and the energy sector.
Today China is ”the world's manufacturing hub”, and thus the world's economies depend on China's economy. Global climate transition however also depends on Chinas transition of the energy sector. In other words, what happens in China affects all people on the globe.
Since Covid, the growth in China has fallen and so does the outlook. This affects many chinese people's deeper confidence in that the growth miracle will continue. It therefore also affects their risk aversion. Is China's financial system at risk of collapsing from excessive expectations for future economic growth, i.e. debt? Can the world afford this?
From poor developing country to "the world's manufacturing hub" in 40 years
China is today the world's second most populated country with 1.4 billion people. It also has the world's second largest economy with an annual GDP of 19 trillion USD. Finally is also has the world's largest currency reserves and holds 4 of the world's 5 largest banks.
When Deng Xiaopeng started the growth via his agricultural privatizations, Chinas 1 billion inhabitants had a GDP of 1% of today (figure 1). China also had next to no currency reserves and only one bank. This both served as central bank AND had monopoly on retail banking. Chinas economy was even more planned than that of the Soviet Union.
No other country has ever before seen such an explosive and continuous growth over such a long time. The annual GDP growth has averaged almost 10%.
Read the article from Finans/Invest (October 2023, no. 5) below - or read on Finansforeningens web page.