Gdp Growth In China Essay

934 words - 4 pages

China's GDP grows 9.6% in Q3, the worldwide economics is recovering.
Xinhua
China daily
09/14/10

In this article, the data sited from the second quarter report of China’s GDP is used as an evidence of global economic recovery.


Review:

Some major economies reported positive growth for the first quarter. In the United States, for example, GDP grew 3.2 percent in the first quarter and 1.6 in the second quarter (1). The International Monetary Fund has posted that the global GDP growth is approaching 4 percent. A lot of positive statistics raise show people a good view that the worldwide economics is recovering. In my opinion, the current recovery is based on government ...view middle of the document...

On the other hand, for the suppliers, which include auto dealers and manufacturers, the auto industry in China seems highly profitable. One can be easily enticed to think this profitability is due to strong demand. Autos are globally traded. Therefore, when we are considering the demand and supply relationship, the worldwide factors must be taken into count. The auto producers inside China and distributors are profitable as the result of trading barriers that shut global competition out. The obvious sign is that the auto price is significantly higher in China than elsewhere.
From an investment perspective, one should be cautious about China's auto sector. Most analysts say that the auto stocks should be popular because of strong demand growth and high profitability. In fact this profitability is due to trade barriers. The average taxes for importing autos are above 137%. This forms a monopolistic competition market. Hence, one must consider the sustainability of the barriers. In case the tax rate is decreased, Chinese automaker profits will shift downwards till reaching the levels of counterparts elsewhere. Furthermore, demand growth will surely slow due to market saturation. There are certain number of people in China need and could afford cars. We can reach the conclusion that the profitability of China's auto industry is highly vulnerable. The rapidly increasing in auto industry cannot be considered as the sign of economical recovering.

Another story against the recovering theory is about the U.S economy. The U.S. economy has been rising based on consumption, which means its growth is more dependent on a declining savings rate against income growth. This is exactly what happened before the burst of the real estate bubble....

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