Yahya Salih, Staff Writer
September 18, 2015
China has long been the fastest growing economy and the most desirable to invest in. Now, as a result of an economic crash, their once amazing economic growth has downgraded.
Starting in June, the Chinese stock market dropped over 30 percent. This may seem alarming, but the economy is actually doing just fine.
Over the past 12 months, the Chinese economy has actually grown,” said Michael Dutch, professor of business management. “Investors had been overvaluing Chinese stocks for a while and the stock market is now correcting itself.”
This little bump in the road for the Chinese has been catastrophic for American businesses.
Large numbers of United States companies depend on the Chinese to consume products that they do not produce themselves. These products include luxury items, fast food and Atlantic fish.
“These American, yet Chinese-dependent, companies have lost nearly $4 trillion this year,” said Eric Oakley, a visiting lecturer of history. “To put that into perspective, $4 trillion is more or less equivalent to the yearly gross domestic product of Germany.”
While American companies are losing trillions, Chinese companies are making that same amount. Several factors have contributed to such events.
The yuan, the official Chinese currency, has recently been devalued by around four to five percent. At the same time, the U.S. dollar is gaining strength internationally.
A appreciating dollar would force manufacturers to charge more for production, which raises prices. The devalued yuan would allow the production and the price to be kept low.
These strong margins make China largely depend on foreign markets. If they can not sell items for the lowest price, their economy is in trouble. They are looking to move away from that.
“The Chinese economy is heavily dependent on exports,” said George Guo, professor of political science. “If foreign markets shrink, so does China’s.”
The Chinese have a plan to face this problem.
“China is looking to transition from an export-based economy to a consumption-based economy,” said Dutch. “They no longer want to be the cheap toy-making factory of the world. The Chinese want to make expensive goods.”
In order to transition, China has to become self-sufficient and build large amounts of capital, while raising the standard of living of its citizens.
To combat China’s reliance on Western resources and goods, China has reached out and built connections all throughout the Eastern hemisphere.
China has recently allied with Russia, which not only provides gas and oil, but also technological expertise. Also, in regard to China’s dwindling resources, China has chosen to invest large amounts of money in Africa instead of going to the West for resources.
“China is theoretically treating Africa as a semi-colonial sphere,” said Oakley.
The Chinese are also making the prices we pay for their goods much cheaper in order to build capital and give citizens more job opportunities and higher paychecks. When the citizens have a higher standard of living, they will buy more items, which translates into a consumption economy.
These are all steps for China to become self-sufficient. They don’t want to rely on Americans having to buy their goods in order to survive.
Next time you visit the Walmart across the street, you can thank the vulnerability and transition of the Chinese economy for those low prices.