Economic authorities agree as of late on the inevitability of a slowdown in the economic activity of China. The prospect was seen from a decrease in the GDP growth rate from a double digit in earlier years to a single-digit growth the past couple of years. Recent reports stated that China had 6.8-percent GDP growth fueled by debt-driven investment spending. From 2011 to 2015, China has incurred an average of almost 7.9-percent GDP growth rate. This type of growth may be seen as a short-term relief to cushion the impact of a slowdown but the long-term repercussion may not entirely be a good prospect for the local Chinese economy not to include accelerated debt obligations.
Considered as the second largest economy in the world, China's once vaunted 10-percent annual growth rate has slowly slipped. Although a more sustainable reform by way of investment spending is in the offing, the source of the deed, dominated by debt-driven facilities, may be destructive in the long run. If not sustained, it may may trigger a regional recession much like the that of the United States in 2008 that saw the demise of once stable financial institutions like the Lehman Brothers.
China's unblemished years of double-digit economic growth that stretched more than 30 years was primarily driven by a robust export income in almost all areas of merchandising. Practically all of the world's countries were infused with Chinese-made products. The influence of China's economy on the rest of the world cannot just be ignored considering that they are the second biggest economy by GDP category, next to the United States. China also has the biggest GDP based on purchasing power parity valuation, or PPP. This may mean that the Chinese yuan commands a higher price than other tradable currencies, at least demand wise.
The slowly fading export-oriented nature of the Chinese economy, if left unchecked, may spell a disaster of unimaginable proportions.
The slowly fading export-oriented nature of the Chinese economy, if left unchecked, may spell a disaster of unimaginable proportions. As an immediate economic remedy, China should shift to a demand-side economy or a Keynesian economics (demand-side economics), mainly focusing on local consumption expenditure as the main source of economic growth. The previous driver based on exports has lately become anemic, and should be supplemented if not replaced by local consumption spending at least until economic crunch eases. Many economies have become successful relying on this temporary relief as the Philippines did, able to sustain and develop other drivers of growth in the long run.
Philippines should take the lead
The slowdown in both in both the western and eastern economy inevitably provides an unprecedented opportunity for Southeast Asia. The natural shift of economic power in this part of the world was both circumstantial and incidental and a product of many years of cooperation and development in the region. Touted as one of the biggest if not the biggest growth area in Asia, the Philippines stands to produce a double-digit growth rate in the next 6 years.
Buoyed by the euphoria of a radical change in both macroeconomic and microeconomic components that would strengthen basic installations of the local economy, the country expects to achieve a double-digit GDP growth rate at the end of President-elect Rodrigo Duterte's term. Taking off from an economy defined by a mere lip service and characterized by exclusive growth, the next six years will be an economy that serves to protect the interest of the common good, an inclusive growth that will redound to the benefit of the masses.
We should credit the President Gloria Macapagal Arroyo's administration for strengthening macroeconomic fundamentals, as well as those in President Benigno Aquino III's team who successfully restored confidence and trust in leadership, making it the anchor of stability. It has become apparent, meanwhile, that the next administration will implement what was not realized in the previous administration.
The position of the Philippines as one of Asia's growth areas has put a premium on our drive to attract foreign investors to our country. The incoming president's no-nonsense drive against criminality makes more serious the purpose to make the Philippines among the fast rising economies of Asia. The president-elect's serious intention to rid our bureaucracy of corruption will also assure investors who have long meant to invest locally but have been hindered by red tape.
The incoming president's no-nonsense drive against criminality makes more serious the purpose to make the Philippines among the fast rising economies of Asia.
The plan to improve the rather average status of private-public partnerships by the incoming president stands to stimulate and concretize the Philippines as a credit worthy economy. Buoyed by the promise of conducive investment climate, potentials for growth of the local economy can now be more realized. Infrastructure will soon be in place and significantly contribute to economic development.
Whereas before the specter of crime abounds, Duterte's vision of ridding urban centers of lawbreakers will set the trend for the next six years to achieve stability, especially when peace and order in more developed countries have become vital issues.
Emmanuel J. Lopez, Ph.D. is an associate professor at the University of Santo Tomas and the chair of its Department of Economics. Views reflected in this article are his own. For comments email: doc.ejlopez@gmail.com