The Economic Performance of China in April 2012 - Essay Example

?An Inside Look At the Economic Performance of China in April In order to know the total value of a countries production, it is important to learn and understand the measurement tools used. One of them is the value of GDP, known as the gross national product. The value of the GDP is measured by taking into consideration the value of all the goods and services that are produced in a particular country. it also indicates the total market value of all the final goods and services that are produced in the countries, in a given period of time, usually one year.1 This translates to the total value of a countries income. Recently, the china daily newspaper, reported that the economy is dwindling, a factor that has taken the country by storm, considering that the country has had a booming economic pattern in the last few years. This article looks at the factors that have affected the country’s gross domestic product, and the resultant consequences. According to the china daily, the recently released economic informants have indicated that the country’s economy have continued to slow down throughout the month of April, which has raised concerns that the country’s government will opt to adopt greater policies so that it can ease and help to stimulate the growth of the country’s gross domestic product. 2 The policy makers of the country have resulted to quickly annihilating the industrial production and fixed investment sector, in addition to the disappointing trade figures, factors that have overtaken inflation as the main issues of concern for Chinese policymakers.3 Various factors and measurement tools are used to determine the value of the gross domestic product. These factors are subdivided into four major groups of expenditures. These are consumption, investments, government purchases, and the net exports. However, other means of calculating the gross domestic product include adding up the value of every firm that is involved in the production of final goods and services. In addition, other measures can also be employed such as the total production and the total income.4 According to the China Daily, various risks are associated with this downtrend, which has driven the policy makers to act quickly. According to the analysts, the gross domestic product for the country is expected to reduce in the month of April compared to other months in the year. The reasons for these downward trends are the weak exports and dwindling real estate markets. However, there are other factors that I will analyze, which have caused the economic downtown in the country. These factors are related to consumption, investments, government purchases, and net exports.5 The basic equation for calculating the gross domestic product is GDP=C+I+G+ (X-M), where C represents the private consumption, I represents the gross investments, G represents government spending and (X-M) represents the exports minus imports.6 Production approach In order for China to experience declining economic growth in the in the production sector, a number of reasons can be attributed. One of the major factors is that the country has been experiencing a decline in the number of exports to other countries. As a result, the manufacturers have been hard hit and the ports remain piled due to the low demands of these goods. A major contributor to the low demand of the products is the availability of quality substitutes, which are produced in another country.7 Products such as the mobile phones and the electronic equipment such as the televisions have remained in low demand though the cost of production in the country is low. In addition, the value of the Chinese Yuan has constantly been on the rise due to the recent demand for its products and services. This has made the Yuan appreciate over other currencies such as the Japanese yen, the Australian dollar and the Hong Kong dollar. Consequently, importers from other countries are required to spend more to import this product. The result is that other importers cease buying from China.8 Another reason for declining Chinese economy over the month of April is the declining real estate market. The housing sector has been on the rise in china for a long time due to the constantly increasing population. China is the most populous nation in the world, having more than one billion people.9 The real estate market in China is also among the largest in the world. One of the main reasons for this trend is the speculative motive that people expect the price of housing to decrease in the future. This has led to people hoarding their money in their accounts, a factor that other investors in the outside markets have been closely watching. Moreover, the country has experienced an inflation rate increase of 3.4 per cent according to the consumer price index. However, this is a decline from the countries consumer price index of 3.6 per cent from the previous month.10 The declining inflation in the country has initiated quick actions and policy making by the responsible institution, the central bank. The aim of the policies is to increase the consumer spending and bring into effect more compassionate credit policies.11 Despite this, the economy sector grew by 9.3 per cent in the industrial production while as the retail sector grew by 14.1 per cent as compared to the growth of 15.2 per cent in March. This indicates a decrease as compared to the previous month production. According to the china, daily, other areas, which have grown, are the electricity production, which is a great indicator of the industrial manufacturing sector, which rose to 371.8 billion kilowatts. One of the main causes of the decreased performance in the economic sector is due to the prevailing condition in the domestic market and the country’s main external market of United States and Europe.12 Other Effects in the Economy The decreasing effects on the economy have had several changes appearing on the financial market. A major change is that the economy has become unease thus being unattractive to foreign investors. More so, it curbed the fervor of most Chinese investors to expand their businesses abroad.13 Interest Rate Approach Reduced consumer spending in the economy has had several effects in the economy, one of them being the decrease in inflation. This has resulted to reduced money circulating in the economy thus reduced investments. "The central bank may further cut the reserve requirement ratio by 50 basis points in May to inject more liquidity into the market and boost economic growth," Liu said. "Amid this gloomy situation, the government may slightly adjust economic policies to speed up GDP growth in the second quarter, said Liu Yuanchun from the Renmin University of China." It is expected to be higher than the first quarter's 8.1 percent.14 Income Approach To attain the income approach, the economy of any country considers various factors, which are inherent to the economy. Income approach is described as the sum total of all the incomes of individuals in a country in a given year. This measure is also known as the gross domestic income. The domint factors approach is considered in this approach are the wages, salaries and the supplementary labor income. These factors have so far remained unchanged in the Chinese economy although the inflation movements have affected them. In addition, the income approach takes into consideration of all the corporate profits.15 The corporate organizations are one of the greatest contributors in the economy since they create employment opportunities to their employees. In addition, these organizations create revenue for the government through taxes and levies on the imports as well as the exports. They also create interest and miscellaneous investments income on the economy. The Interest and assorted investment income have been affected in that the inflation in the country has caused the interests income on the investments to reduce.16 This move has hindered investments from interested investors since they are conscious on the return on the investments will be surpassed by the consumer price index rate. This means that the value of their investments will reduce compared to the amount invested. In addition, the government also considers the income gained by the farmers as well as income from non-farm unincorporated businesses. However, two components need adjustments in order to obtain the correct amount of gross domestic product by income. These adjustments are that the subsidies are subtracted from the indirect taxes where the results are added to get the factor cost to market prices.17 Expenditure Approach The expenditure approach takes into consideration all the expenditure that is incurred by individuals during one year. According to the china daily, the government of china is to increase the expenditure on the development of infrastructure in the country. This move is to increase the spending in a move to increase the amount of money circulating in the economy. Consequently, the development of infrastructure will attract the foreign investors as well as the domestic investors.18 Conclusion The growth of the Chinese economy has been on the decrease in the last one month of April. This has been due to the prevailing conditions in the countries domestic market mainly in the real estate market as well as the production sector. In addition, prevailing conditions in the country’s main trade partners of the United States and Europe have contributed to this downward trend. Bibliography Arnold, Roger. Macroeconomics. New York: Cengage Learning, 2010. Arthur, O'Sullivan. Sheffrin, Steven and Perez, Stephen. Macroeconomics: Principles, Applications, and Tools. New York: Pearson Education, Limited, 2012. 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