On January 25th, 2015 Shanghai’s mayor, Yang Xiong, gave a speech to the Shanghai Municipal Peoples Congress addressing ways to combat Shanghai’s declining growth rate.
While the China’s national growth rate in 2014 was 7.4%, Shanghai’s 2014 growth rate was 7%. This came as surprise and, “marked a rare disappointment for a city that often outpaced the national expansion.” Other metrics such as per-capita urban household disposable income were used to represent economic growth. In 2014, the per-capita urban disposable household income increased by 8.8%.
To combat the declining growth of Shanghai, the mayor outlined many new policies to create new free trade zones. In addition to these new free trade zones, the mayor hopes to implement policies that will let investors exchange yuan to foreign currency with more ease. These new policies will hopefully increase trade, and foreign investment, allowing Shanghai to counteract it’s declining growth.
Source: http://blogs.wsj.com/chinarealtime/2015/01/25/shanghai-growth-lags-chinas-national-average/
After reading the article, it seems that Shanghai’s declining growth is nothing China should be worried about. The country is still experiencing 8.8% growth in disposable income. The growth China has seen in the past should not be used as a bench mark because it is still higher than the global average. In addition, China’s population growth rate has slowed to an all time low 0.5% which will lower the national GPD growth rate. What should be looked at is per capita GDP growth rate.
Rather than cutting taxes and creating free trade zones, I believe it might be in China’s best interest to keep taxes where they are to finance government expenditures on the infrastructure and school systems to support a densely populated country.
Considering my recent post on “Shadow Banking” in China, it seems clear Shanghai may provide an ideal environment for the growth of these financial intermediaries. Slow growth, coupled with companies desperate need for less and less accessible lending, may lead to unregulated shadow banks filling this lending void. Without increased governmental oversight this could in turn create a worse financial situation down the road.
Cast around when you can for jargon; that often provides a hint about how to couch your analysis. (Hints can be misleading, but the only way to overcome that is experience – I’ve decades of experience making mistakes.)
In this case think “diminishing returns.” One aspect is urban size: early in its growth doubling in size is possible. But going from 20 million to the next level (if there is one) becomes progressively harder. There’s a statistical component to this: one source of growth was incorporating outlying areas into the city proper. As the geographic boundaries got pushed out, that became harder because new areas were too remote from the urban core to be as productive. Going from no modern retailing to department store chains and franchise operations is also a process from which returns diminish rapidly, with lots of gains from efficiency, but little or none from one chain displacing another, slightly less well-run one.