China Not the Future?

China has quickly become the world’s second largest economy in the world with a nominal GDP of $8.2 trillion according to the International Monetary Fund. In recent months we have seen China’s economy begin to retract, and show sign’s that the nation may not be able to sustain the high rate of growth it has accomplished in recent years.

In a recent report released by the World Bank, it has revised China’s,economic forecast from 8.4%  to 7.7% a 0.7% difference. While the World Bank has estimated the world economy to grow by only 2.2% from it’s previous estimate of 2.4%. Growth is slowing in the worlds’s second largest economy as policymakers seek to rebalance the countries growth model.

Over the last few decades China, has relied heavily on exports, and government-led investments, to both boost, and grow the economy. While demand for Chine’s exports has declined in recent years due to weaker demand in the United States, and Europe. The Chinese government recently invested $150 billion in infrastructure. The World Bank has said “The main risk related to China remains the possibility that high investment rates prove unsustainable, provoking a disorderly unwinding and sharp economic slowdown.”

Should the service of current investments prove unprofitable, the service of existing loans could become problematic, potentially sparking a sharp uptick in non-preforming loans that could require state intervention.  The World Bank also noted that growth in other emerging economies such as Brazil, and India, has slowed as well.

China recently signed a currency deal valued at $30 billion with Australia, and Brazil, this makes trading easier between the countries, as businesses no longer have to convert to US Dollars. China has signed three currency deals in an effort to internationalize the Yuan.

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