China and our future

China is expected to become the world's largest economy by 2020. The present near double-digit growth rates validate this claim. Hence ignoring any decisions by the Chinese think-thank would be pure folly. If one studies the 12th Five-year plan to be implemented by the Chinese Government for 2011-15, we can predict future trends of the world economy.

Post-Recession world is looking towards the Eastern Hemisphere to drive growth. China has finally realized that it cannot expect to maintain high growth rates with the present Export-Oriented strategy. Also, it cannot afford to allow its economy to be subject to the economic vagaries of other countries. China seeks to be the leading economy post 2020 and it better start acting like one. It needs to develop its own domestic demand, not just because of the fore-mentioned reasons, but also also because the traditional markets of the Western Hemisphere are getting saturated. Infact these markets may contract owing to the populist protectionist measures taken by them. China has finally decided to tap its own domestic market to fuel its burgeoning economy.

Even though Chinese Economy has had its spoils of riches, it has been concentrated in select few hands. The 12th Five-Year Plan focuses on creating a more balanced economy by allowing the whole country to get rich rather than a lucky few. Domestic demand, sought to be increased by raising wages and salaries of the common man, will become the prime focus of this plan. The reduction in income gap will be critical for China to maintain its meteoric rise in the economic pecking order.

This change is not bereft of challenges. Raising wages and salaries would directly affect prices and China could lose its edge in exports. Increased domestic demand may lead to high inflation rates and an overheating economy. China needs to balance these threats while maintaining its edge in export-led sectors.

What it signifies

China is unwilling to feed US and Europe, the consumer giants and wants to focus on domestic needs. The country will still remain an FDI favorite, but firms will start looking at other alternatives to invest. Chinese policymakers are seeking to address its poor fundamentals and strengthen its position in the World. However this shift in policy might back-fire, as increased cost and investment fears might cause them to lose their USP as an investment favorite and trigger massive Cash Outflows.

What it means to me

China will no longer churn out products at dirt-cheap prices. However one can safely assess that opportunities for Indians will rise with the heavy capital to be invest in India. A growing working population and a fundamentally stronger economy will attract more Cash Inflows. In the long-run, Indian economy, inspite of having its own share of problems, will surely overtake Chinese Economy, though it is tough to put a finger on when this might happen. We as Indians surely hope to relive our age of "The Golden Bird of the World".