Despite its recent financial problems, China has massive opportunities for growth now and into the future, as assessed by analysts in the popular press and elsewhere.

  The initial cause of the Chinese stock market crash was an unsustainable investment bubble. Charles Riley and Sophia Yan note that, despite declining profits for Chinese firms, investors were still eager to move money into a stock market that had, until recently, been quite profitable. Stock prices rose higher than they should have due to this speculation, creating a bubble that would inevitably burst. It did so in June of this year, as investors pulled their money from the markets as quickly as possible to minimize their losses, driving stock prices down even further.

  The Chinese government’s response to the crash was swift and aggressive, but changes in monetary policy take time to help an economy recover. The two most powerful policy decisions that China made were the lowering of interest rates as well as the reserve requirement (Riley & Yan, 2015). Lower interest rates make it cheaper to borrow and then invest money in new projects, hopefully encouraging firms to invest when they otherwise would not in a struggling economy. A lower reserve requirement means that banks are required to keep less cash in their vaults against the deposits they have received. This, in effect, increases the amount of money available to loan out by the banking system, indirectly making it cheaper and easier to borrow money.
 

  Whether or not these policy changes alone will be enough to spur speedy economic recovery in China is a question that remains to be answered, and we will know more in coming months about the state of China’s economy.

  Quite aside from  the policy response, there is still reason to be hopeful about China’s economy going forward.The Chinese social, political, and economic landscape has been changing rapidly over the past decades. Although still nominally Communist, China has become ever more capitalistic as the country modernizes and its economy grows. Chinese leadership, though monolithic, is still able to recognize that strict Communism, without any capitalistic elements, is not the way to compete globally in the 21st century.
 State control of China’s private sector has been declining since the end of Maoism in the 1980s, allowing for private firms to begin to appear in sectors that would not have been possible fifty years ago. A large segment of China’s economy is still controlled by the state, with approximately one third of China’s spending coming from State Owned Enterprises, or SOE’s (Vaitheeswaran, 2015). These organizations were largely responsible for China’s economic growth over the past decades, and such a rapid expansion may not have been possible had it been left in the hands of an inexperienced private sector that has emerged during the decline of Communism in China.
 

  Government control of economic growth and investment invariably creates inefficiencies, but it was necessary for transforming China from an agrarian economy to a manufacturing economy in the time that its government wanted. This kind of growth, however, may have reached its limit. It worked well for large scale expansion like city building and infrastructure construction, but now a more free market is required to fill in the gaps. The Chinese government has recognized this fact and taken certain steps to open up the economy, but there is still a long way to go in a country where central planning has been the norm for so long.
 

  Vaitheeswaran highlights this fact when he notes that the private sector in China is responsible for over two thirds of China’s economic output, ninety percent of exports, and nearly all urban job creation since 1978 (Vaitheeswaran, 2015). This goes to show that you can build cities, power plants, and roads from a central planning perspective, but the way in which that infrastructure is actually used is determined largely by the activity of individuals in the private sector. Vaitheeswaran also points out that niche markets would still account for a large amount of economic activity in a country as large and as populous as China (Vaitheeswaran, 2015). These types of small businesses are obviously difficult, if not impossible e to be effectively centrally planned, and, once they gain traction, should help bolster the Chinese economy.
 

  Another concern is China’s aging and soon to be shrinking labor force (Vaitheeswaran, 2015). This will hurt productivity in the future, so growth will have to be found elsewhere, primarily in technological innovation and redistribution of factors of production. As Chinese labor diminishes, firms will be forced to innovate in their production process, something that is rarely seen when there is an abundance of cheap labor. A smaller labor force in China will also improve the bargaining power of laborers there, hopefully raising their real wage. This, in turn, will allow more people in China to buy more goods, especially leisure and luxury items. An increase in demand for these items will only spur production and innovation even more in these sectors of the economy.
 

  China also has a growing middle class, as Vaitheeswaran mentions that the urban middle class is expected to grow to more than seven times its 2007 levels by 2020 (Vaitheeswaran, 2015). This growth in wealth will allow for a rapid expansion of new firms, especially in the service industry. A shift from a manufacturing to a service economy, which most developed nations have experienced, contains within it a huge opportunity for growth in China’s economy. Currently, the service sector in China is relatively small and underdeveloped, due in large part to the fact that there is no widespread demand for many of these services. A growing middle class will create demand, and the service economy should experience a boom in China.
  

  The Yuan exchange rate has been in steady decline over the past year or so, with another sharp drop coinciding with the stock market crash earlier this year. The erratic nature of its exchange rate has some worried, but overall a weaker Yuan may be good for a struggling China. Foreign investors are less inclined to hold on to a weakening currency, and so Yuan should return to the Chinese economy, helping encourage domestic investment as the money supply increases. Additionally, a weak currency means that foreign firms and governments will be eager to buy cheap Chinese exports, helping to grow China’s large manufacturing industry.
 

  To return to the discussion of the stock market, it should be noted that, despite falling prices in general, there are still some stocks that have been doing quite well. Mostly, these are IPOs of firms that have recently declared bankruptcy and restructured (Deng, 2015). An IPO is an initial public offering, that is, when a firm first publicly offers its stocks to investors. Chinese financial regulators have been reluctant to approve new IPO’s in light of the stock market crash, but have been more lenient with firms that are reentering the exchange after restructuring how they operate and are run. Could this be another investment bubble, with investors pouring their money into the few stocks that are profitable at the moment? Possibly, but these firms may also represent a real opportunity for growth given their recent reorganization. Firms that struggled under a state controlled economy may now have reordered themselves to be far more efficient in China’s increasingly capitalistic landscape. If this is the case, then hopefully these firms can be used as models for more businesses down the road.
 

  China’s centralized power structure with only a single political party can be used to either the detriment or growth of the Chinese economy. With no real political opponents, of course, the party may become stagnant and stuck in its old ways of doing things. When this old way of doing things is wary of private enterprise, this creates an obstacle for growth. However, if the party is able to embrace the changes that are necessary for China’s continued economic growth, then these changes can be put into effect immediately without the arguments and legislative slowdown that are present in countries with a more diverse political landscape.
 

  In summary, China’s leadership will face economic problems if it is unable to embrace a more international capitalistic economic model. They are, however, in a position to make sweeping changes that will benefit Chinese citizens greatly.

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