Outlook Weekly published an article discussing China’s economic growth in the mid to long term. It listed four challenges that China faces:
1. As the global economy is still depressed, the demand for exports may negatively impact China’s economic growth. In 2011, exports dragged down the GDP growth rate by 5.8%.
2. Consumption is likely to stay at the same level. However, the continued economic depression may cause consumption to decrease.
3. The pressure of inflation still exists due to a lack of land in cities, a rapid increase in labor and service costs, an upward adjustment in service industry pricing, the the continuous increase in the price of agricultural products as a result of urbanization, and the ongoing pricing reform
4. High financial leverage results in a risk of bad loans. The M2/GDP ratio, which was 180% in 2011, is higher than in both developed countries and developing countries that are at a comparable income level with China. Local governments and state-owned enterprises are both highly leveraged.
Source: Outlook Weekly, republished on Sohu.com, January 29, 2012