It appears that the leverage ratio in China is fine in comparison to other developed countries; however, there may be some issues with corporations that are state-owned. China has been getting a lot of attention in regard to the role it plays in the global economy as of late; well, actually since the late 1980s, when the country embraced capitalism and the market economy.
Currently, China generates nearly 15 percent of the global gross domestic product. However, despites its growth, the country is also experiencing a significant amount of debt, as per the corporate and government balance sheets. This was particularly true in 2008, during a financial crisis that lead to a 4 trillion RMB stimulus package, which was meant to be an incentive to grow the country’s economy, despite of the recession that was occurring globally.
The Current Global Domestic Growth
Today, the current global domestic growth of chine remains consistently strong. This is despite of the fact that the borrowing habits of consumers has become reckless, to say the least. The Chinese economy is starting to settle down, and as it is, investors are starting to express some concern regarding the economic health of the country. This is largely related to the credit crisis.
The government is working hard to handle the problem. This is evident as per the de-leveraging of the economy that has occurred, as well as the reduction of its reliance on debt.
Is China’s Economy Well-Leveraged?
As per a report issued by Haitong Securities’ at the end of the 2016 fiscal year, the total debt of the country of China was an astonishing 176.8 trillion RMB. That’s about 237.6 percent of the country’s annual gross domestic product.
These numbers position China as one of the most leveraged countries on the globe. However, it should be stated that the country still isn’t as leveraged as most developed countries, including Japan and the United States. The same report also illustrated that the leverage ratio of the government has been on the decline, while household leverage ratios are increasing. This is due to the rising cost of housing. Also notable is the fact that China’s non-financial corporations are leverage land ratios at a rate of 144 percent, and the state-owned enterprises leverage their ratio lands at a rate of 75 percent. These numbers are quite high.
Based on these figures, in order to reach the goal of maintaining a 6 percent annual growth rate, the economy of China will likely become more leveraged in the future.
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The Future of China’s Economy
In the span of the last 35 years, the economy of China has grown exponentially. If the rate of growth of this country’s economy continues the way it has for the past 35 years, it could very well be the largest economy in the world within the next 10 years.
China is the leader in the world regarding annual output in the manufacturing sector, according the gross value. As such, it really is no wonder why this country is the largest trading nation in the world; not to mention the biggest exporter.
China’s Economy According to Sector
The Chinese economy is highly diverse and is comprised of several different sectors. Some of the most notable sectors include the following:
- Agriculture. Though China does produce a significant amount of produce, the majority of it is used domestically. Though some of it is exported, agriculture only accounts for about 10 percent of the country’s gross domestic product.
- Mining. This is another large sector of China’s economy, as the country has an abundant amount of natural resources; oil and coal, in particular. While mining only employed less than 1 percent of the workforce of China, it is a vital part of the country’s economy. Oil and coal make up around 70 percent of the China’s energy production, and the country exports a tremendous amount of this product.
- Manufacturing. Regarded as the most productive company for manufacturing in the world, China is often referred to as “the workshop of the world.” An estimated 30 percent of the workforce is employed in the manufacturing sector to some capacity. This sector also accounts for about 44 percent of the country’s gross domestic product. The most notable products that are output by the manufacturing industry include heavy metals, such as steel. Chemicals, including plastics and fertilizers, also make up a large portion of this sector of the economy.
- The service industry. The service sector employs the largest part of the Chinese workforce, accounting for more than 35 percent of labor. It also outputs about 46 percent of the country’s gross domestic product. Tourism, travel, telecommunications, eCommerce, the Internet, as well as retail and wholesale trade establishments are all a major part of the service industry of China.
China’s Key Trade Partners
As can be assumed, China does trade with several countries around the world. Undoubtedly, the country that China does the most trade with is the United States; an estimated 17 percent of Chinese exports are delivered to the US. Other key trading partners include Australia, South Korea, Japan, Taiwan, and nations in the European Union, particularly Germany.
Given the ever-growing economy, the trade relationships with other countries, the exported products, and the initiatives that have been set forth by the government to expand the economy, it is safe to say that the economy of China is not only secure, but that it will continue to grow expand well into the future. There are countless opportunities to invest in the Chinese economy, including ample employment options and trade. Investors, including government agencies and private sectors, can expect to have great success when they take advantage of China’s economy.
