Is China's rapid growth in production (which raises GDP) sustainable?

Expert Solution

China, the world’s second largest economy, has transpired explosive growth since the past 30 years. Factors attributing to this were mainly based of their system of a mixed economy. The Chinese government's spending has been a significant driver of its growth. In 2017, growth was $23.12 trillion, the largest in the world which was 6.8 percent more than that in the year 2016. China's GDP grew at 6.5 percent year-over-year in the third quarter of 2018.

The country has been mainly driven by investment through the initiatives undertaken by the government, rather than consumption by the private sector. The benefits in the growth in GDP are passed on back to the state and have a lesser impact on private consumption as compared to economies where the private sector are main beneficiaries resulting from increase in GDP growth.

Interference by the Chinese government is showing signs of overinvestment especially in the physical infrastructure sector. This explains the rising prices in real estate in the country. A banking crisis in China is possible because of this as the institutions can end up with large Non Performing Assets (NPAs).

Overall, growth in China is expected to gradually slow down as the country moves on its path to become a developed nation. This is because, as countries become developed, it means that their scope to increase growth levels go down as they already have a high GDP amount.

Rahul Sunny answered 1 year ago

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