China Reforms 2013: The Economic Impact

The global economic affect of China reforms 2013

If you haven’t already noticed, the financial markets have been doing very well this year; the Standard & Poor 500, for example, is up more than 24 per cent year to date. This is expected to be bolstered further by new economic reforms announced by China – investors are hoping that this momentum could carry markets in 2014. Buyer confidence, in New York especially, has increased upon hearing of changes to 30-year-old Chinese restrictions. Here are the highlights of the 60-point plan:

Relaxing The One Child Policy

For the first time in three decades China announced it would be relaxing its one child policy, allowing Chinese couples the right to have two children without fine or persecution. The one-child rule was first introduced in 1979 in an effort to control China’s population growth, which at the time was threatening to reach unsustainable levels. China is the world’s biggest country by population and second biggest by economy. The news that there could be many more Chinese babies coming as early as next year is providing a boost to companies that make baby supplies and food, such as stroller manufacturer and distributor Goodbaby International.

A Push Toward Urban Living

China is also encouraging millions of people to move to the nation’s bigger cities in a bid to promote economic growth. The move from rural living to city dwelling is typical of any country going through major economic growth. For example, up until the industrial revolution, only three per cent of the world population lived in cities. But as development grows people choose to move closer to city with less space to take advantage of opportunities presented by big companies located there. This could be China’s industrial revolution.

Financial  And Competitive Reforms

China has been artificially manipulating its economy since the 1970s by controlling its currency’s value and economic growth. Since the government controls the banks, there was little investors could do to avoid the restrictions. Now some of those have been lifted, making way for private investors to open a bank in the country if they wish to do so.  The central bank has already taken action on its lending rates earlier this year.

Additional China Reforms 2013

The rest of the report also discusses welfare reform, more respect for farmers, and encouragement of private equity and tax reform. However, the report is vague and critics say changes could take years to show a real affect. China is a massive economy and the biggest threat to the U.S. when it comes to having total dominance on the world. Its population is more than a billion strong, and investors around the world recognize the opportunities there for international companies.

Should You Invest In China?

If you are thinking of investing on this news, be aware that the noise from these reforms could be like a bull in a china shop – they’re running at top speed, rather than implementing long-term significant changes for investors to consider. Critics also say that while the easing of the one child policy is great, those kids still need to be born; it will take another 20 years of education and experience for those individuals to have a real impact on the Chinese and global economy.

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