The Unsustainability of Export-Led Economy In the past decades, China’s exports have increased twice as fast as the world trade, making China the largest exporter worldwide. After examining the contribution of exports to growth since the early 2000’s, Akyüz (2011) points out that approximately one-third of Chinese growth before the global financial crisis of 2007 was a result of exports. With a sharp drop in its exports after the financial crisis, Akyüz doubts whether or not China can return to its former rapid and sustained export-led economic growth after a serious recession. With the sharp slowdown of China’s economic growth rate in the year of 2008, Guo and N’Diaye (2009) also agree that it was due to China’s heavy dependence on exports.
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In particular, they find that the heavy dependence on investment caused several social problems in China, including income inequality, rural poverty, and resource intensity. In addition, maintaining current rapid economic growth requires further increasing the already high investment and savings, and this cannot be achieved because of the diminishing marginal return to capital. Also, an even higher investment might even severely lower urban employment growth and widen the rural–urban income gap. Therefore, it is not sustainable for China to maintain its rapid growth by increasing …show more content…
That is, the large investment has impeded the growth of personal consumption, leading to a decrease in human welfare. Based on the data that Fukumoto and Muto found, per capita urban household income has not risen as rapidly as per capita GDP during the past few years. This prohibits China from pursuing its economic goal, which is to increase the living standard. One possible reason to explain this increasing disparity between per capita urban household income and per capita GDP is that the per capita GDP is calculated by the ratio of total GDP over the population. Unlike the United States, the dividends in China’s enterprise are relatively low. Therefore, even if the profits of some enterprises are high, employees could not get any extra money, and their wages are insulated from the dividends. Thus, the large profits of enterprises will increase the total GDP directly and eventually increase the per capita GDP indirectly. On the other hand, since the wages are insulated from the profits of enterprises, the household incomes are relatively fixed. Therefore, the large increase in per capita GDP will widen the disparity between per capita GDP and per capita household
In particular, they find that the heavy dependence on investment caused several social problems in China, including income inequality, rural poverty, and resource intensity. In addition, maintaining current rapid economic growth requires further increasing the already high investment and savings, and this cannot be achieved because of the diminishing marginal return to capital. Also, an even higher investment might even severely lower urban employment growth and widen the rural–urban income gap. Therefore, it is not sustainable for China to maintain its rapid growth by increasing …show more content…
That is, the large investment has impeded the growth of personal consumption, leading to a decrease in human welfare. Based on the data that Fukumoto and Muto found, per capita urban household income has not risen as rapidly as per capita GDP during the past few years. This prohibits China from pursuing its economic goal, which is to increase the living standard. One possible reason to explain this increasing disparity between per capita urban household income and per capita GDP is that the per capita GDP is calculated by the ratio of total GDP over the population. Unlike the United States, the dividends in China’s enterprise are relatively low. Therefore, even if the profits of some enterprises are high, employees could not get any extra money, and their wages are insulated from the dividends. Thus, the large profits of enterprises will increase the total GDP directly and eventually increase the per capita GDP indirectly. On the other hand, since the wages are insulated from the profits of enterprises, the household incomes are relatively fixed. Therefore, the large increase in per capita GDP will widen the disparity between per capita GDP and per capita household