Economical Development of China - Literature review Example

?Economical Development of China Literature Review Contents Economical Development of China Literature Review Contents 2 Literature Review 3 Reference 8 Bibliography 9 Literature Review China is one of the fastest growing developing countries in the world. In the year 1979, the Chinese government has opened up the economy, which encourages the foreign companies to open up franchises in China and joint venture with the Chinese companies. Figure: Gross Domestic Product of China Source: (Google, 2012) From the above picture it is implied that after opening up the economy the gross domestic product of China has grown gradually and that is also in a fast pace. From the 1979 to 2005, the GDP of China has grown at an average of 9.6% annually (Morrison, 2006, p.3). At this pace at the end of the year 2010 China has became the second largest economy of the world after the United States. Before the year, the economy of Japan was the second largest economy. During the financial crisis, the export business of Japan has decreased but in the other hand the manufacturing industry of China has grown. The pace of economic growth of China has made the analysts to forecast that China will replace the United States as the largest economy of the world (BBC, 2011). The economic prosperity of a country can measure by the per capita personal income of the people of the country, the employment growth of the country, the population growth of the country, the average educational qualification of the people of the country (Muskegon Area Sustainability Coalition, 2012). For developing a country, it is necessary to develop all the parameters, which has mentioned earlier by the researcher. Therefore, for developing all these parameters the banks and the government have to take necessary steps like to form some policies, which would help to increase the income of the fellow citizens. China has taken such steps for improving the financial condition of the people and the country. In the decade of 1960 and 1970s, the banks acted as the cahier of the Chinese government. There was no equity market that time in China. In the decade of 1980s, two major reforms changed the structure of the Chinese economy. The commercial banking function of the country has separated from the central banking function. The mono-banking system of the country also broke by the government. There are three tiers in the banking system. The first tier of the banking system comprises of the policy banks of China, which includes the Agricultural Development Bank, Import and Export bank and the state development banks. The objective of these banks is to provide the needed finance to the government for various projects. Industrial and Commercial Bank of China, Agricultural Bank of China, Construction Bank of China and Bank of China are among the second tier banks of China. During the reform period, the second tier banks have provided a large amount of loan to the government and the people also. The third tier banks of China include Huaxia bank, Shenzhen Development Bank, Pudong Development Bank, which are the regional banks of China, and the main financer of the state owned enterprises. There are also the financial institutions like the urban credit cooperatives and the rural credit cooperatives. The third tier banks and the non-banking financial institutions of China are more profit-oriented organizations. The loan rate of these organizations is more flexible and they are not there to lend to the government like the first and second tier banks. The first and second tier banks i.e. the policy banks and the four main banks (which are of the second tier) owned by the central government completely, where, the third tier banks are owned by the states, or the large state owned enterprises or they owned by multiple shareholders. From the year 2001, the Chinese government has agreed to list minority stakes of the commercial bank in the stock market and the stakes are there for the foreign investors. Though it has been reported that the development was not so successful; but the Chinese and foreign media has reported about the transactions, which have taken place in the development (Huang, Saich and Steinfeld, 2005, pp.3-5). The stock market of China opened up in the year 1990. Only 10 firms listed in the bourse. By the year 2003, the number of firms had risen to 1238 in the Chinese stock market. The stock market procedures of China have changed a lot from its inception in the year 1990s. In that decade, the central ministry and the local governments have direct power to decide about the listing of the companies. The listing of the firms needed the confirmation by the central ministry or the state owned governments. The method was not transparent at all. Because of this, the listing system has changed in the year 1999 and 2000. The registration system was of the United States market style. The method became strict than the previous and the registration not needed the recommendation of the government anymore. The transparency of the system also increase, as the Chinese Securities Regulatory Commission has made an auditing standard, which the listed firms have to follow (Huang et al, 2010, pp.38-42). The guidelines are about to follow a specified type of financial disclosure. The firms have to disclose the financial statements in a transparent manner for the interest of the stakeholders. The prices of the stocks were also market driven as well as the stock exchanges have the power to delist the companies, which have performed badly in a specific time (Xu and Wang, 1999, pp. 80-81). Therefore, it is concluded that the stock market framework of China is strict, which make it sure that the interest of the stakeholders of the company are maintained. The Chinese government has taken substantial measures, which is urgent at that time with respect to the global economic scenario. At the time of global financial crisis, when there were liquidity scarcity in the world and the future economic condition of the world was under question, and then a country needed to make strong the base of the economy. The government needs to make the base of the economy strong to secure the future of the economy. The economy of Japan is mainly export oriented and they have made investments in all over the world. However, at the time of downturn Japan was among the worst affected countries as the economy of all the countries has affected due to the recession. The manufacturing capabilities of all the companies also decreased. At the time, the economy of China has not affected so much, as the basis of the economy was strong (Naughton, 1998, pp. 3-6). However, certainly it has affected because of globalization. In the year 2008, China has taken 10 major steps to improve the monetary policy and the fiscal policy of the country (Xinhua News Agency, 2008). The steps taken by the state council was to develop the urban and rural infrastructure for housing, the educational structure, which would help the country to secure the future, the protection of the environment and the change in the structure of tax. Applying certain strategies for these sectors make the basis of the economy stronger than the previous and it also make sure that the future of the economy becomes secure. China has made some special economic zones, which has attracted the foreign investors to open up the companies there. The companies can get financial benefit there. They have to maintain certain specifications of the government and they get the benefits like the tax heaven, which would increase their profit. The companies get attracted to expand their companies in the special economic zones as they get low cost labours in China along with the tax benefit (Ota, 2003, pp. 2-5). On the other hand the people of China get the employment opportunities in the multinational companies as well as they can get the international standard product in a reasonable cost, as there is no import cost. The manufacturing industry of China is the main strength of the country. In China, a company can get the labour in a lower cost, so the cost of production decreases. As a result, the revenue increases. The tax rate in China is also less than other country, so the profit of the company also increases. The Chinese companies are mainly export-oriented. They can export their manufactured goods in a lower price than any other country as the labour cost is lower and as a result, the production cost is low. As the Chinese companies are able to export their manufactured goods in a lower cost, they are also able to sell it in a lower cost than the competitors around the world are (Ark et al., 2008, pp. 9-11). The manufacturing industry makes the companies to earn the foreign currencies, which made the growth of the country fast. The gross domestic product of the country has not affected much at the time of the recession even. The development of the educational sector is also a component of the economical development of China. The government of the country has always paid special attention to the education sector, which helps the country to make the future secure (Tsang, 2000, pp. 3-6). Paying same attention to all the sectors has make the country economically developed. From the past 30 years, the economy of China has grown at a constant rate, which is also fast. The economic policies of Chinese government and their past growth have made the analysts to forecast about the bright future of the country. Reference Google, 2012. Gross Domestic Product- China. Available at: http://www.google.co.in/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_mktp_cd&idim=country:CHN&dl=en&hl=en&q=gdp+of+china. [Online]. [Accessed: March 12, 2012]. Morrison, W, 2006. China’s Economic Conditions. Available at: http://www.fas.org/sgp/crs/row/IB98014.pdf. [Pdf]. [Accessed: March 12, 2012]. BBC, 2011. China overtakes Japan as world's second-biggest economy. Available at: http://www.bbc.co.uk/news/business-12427321. [Pdf]. [Accessed: March 12, 2012]. Muskegon Area Sustainability Coalition, 2012. Economic Prosperity. Available at: http://muskegonasc.org/econprosp.aspx. [Online]. [Accessed: March 12, 2012]. Xinhua News Agency, 2008. China plans 10 major steps to spark growth as fiscal, monetary policies ease. Available at: http://news.xinhuanet.com/english/2008-11/09/content_10332422.htm . [Online]. [Accessed: March 13, 2012]. Huang, Y., Saich, T., and Steinfeld, E. 2005. Financial Sector Reform in China. Available at: http://www.fas.harvard.edu/~asiactr/publications/pdfs/Huang%20et%20al.pdf. [Pdf]. [Accessed: March 13, 2012]. Naughton, B. 1998. China's Financial Reform: Achievements and Challenge. Available at: http://brie.berkeley.edu/publications/WP112.pdf. [Pdf]. [Accessed: March 13, 2012]. Xu, X., and Wang, Y. 1999. Ownership Structure and Corporate Governance in Chinese Stock Companies. Available at: http://home.cerge-ei.cz/hanousek/jel_survey/Table%204/panel_B/XuWang_ChER1999.pdf. [Pdf]. [Accessed: March 13, 2012]. Ark, B. et al. 2008. The Cost Competitiveness of Manufacturing in China and India: An Industry and Regional Perspective. Available at: http://www.icrier.org/pdf/working_paper_228.pdf. [Pdf]. [Accessed: 13 March, 2012]. Ota, T. 2003. The Role of Special Economic Zones in China’s Economic Development As Compared with Asian Export Processing Zones: 1979 – 1995. Available at: http://www.iae.univ-poitiers.fr/EURO-ASIE/Docs/Asia-in-Extenso-Ota-mars2003.pdf. [Pdf]. [Accessed: 13 March, 2012]. Tsang, M. 2000. EDUCATION AND NATIONAL DEVELOPMENT IN CHINA SINCE 1949: OSCILLATING POLICIES AND ENDURING DILEMMAS. Available at: http://cnefr.net/yjdh/wxlb/qt/images/2009/1/18/407.pdf. [Pdf]. [Accessed: 13 March, 2012]. Huang, Y. et al. 2010. Financial Reform in China: Progresses and Challenges. Available at: http://paftad.org/files/34/07_HUANG_Fin%20Reform_nofig.pdf. [Pdf]. [Accessed: March 13, 2012]. Bibliography Demurger, S. et al. 2002. GEOGRAPHY, ECONOMIC POLICY, AND REGIONAL DEVELOPMENT IN CHINA. Available at: http://web.cenet.org.cn/upfile/115169.pdf. [Pdf]. [Accessed: 13 March, 2012]. Chinese National Commission, 2004. Educational Development in China. Available at: http://www.ibe.unesco.org/International/ICE47/English/Natreps/reports/china_ocr.pdf. [Pdf]. [Accessed: 13 March, 2012]. Lau, L. 2000. The Chinese Economy: Past, Present and Future. Available at: http://www.stanford.edu/~ljlau/Presentations/Presentations/022800.PDF. [Pdf]. [Accessed: 13 March, 2012]. Read More