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CRN: China’s Era of Cheap Capital is Over

China Review News (CRN) recently published a commentary discussing a major economic turning point in that China will no longer be able to rely on an overabundance of residents’ savings. China’s past economic growth heavily relied on cheap capital provided by the savings people had in the bank. Because of these savings, China had a very low investment cost to subsidize its globalization effort. China’s growth also relied on an extremely low costs for labor, land, natural resources, and environmental protection. However, the prices of these factors of production have been increasing and are about to reach a point where a revaluation will be inevitable. Chinese society is aging, which will result in a decline in the size of the labor force. China is also facing a bottleneck in the area of natural resources, along with a seriously declining living environment. Low efficiency and pollution are raising serious questions about the sustainability of China’s growth. The recent global downturn is causing a heavy decline in market demand. The global capital flow is experiencing a process of re-balancing. China’s current export-oriented model will have to face the challenge of a major adjustment.
Source: China Review News, October 11, 2012