Critical Analysis of Chinas Economy - Research Paper Example

Critical Analysis of China’s Economy Over the past years, China has portrayed relentless economic growth as compared to other countries in East Asia. The high population of China contributed to its high productivity rates and subsequent economic growths. However, in the contemporary world, the population comprises of the unemployed youth contrary to the economic growth. This essay focuses on comprehending the efforts applied in ensuring economic growth. In addition, potential setbacks that China may encounter in the near future will be discussed. Therefore, China faces a challenge of ensuring a maintained status quo. The main concerns consist of strategies that China will need to employ so as to sustain its investments. Additionally, speculations arise on whether China would lose its productivity owing to the escalation labor- capital ratio. Characteristically, the economic growth of China has been forecast to steadily drop from the contemporary ten percent (Chow and Kui-Wai 146). History of China During the industrialization era, China dominated in its lead in global technological discoveries. It is believed that China made its breakthrough in economic growth during the Song Dynasty. During this rule, China made gross investments in technologies, witnessed highest rates of urbanization as well producing large amounts of highly demanded iron. As a result, China acquired the global super power rank in economic growth. However, the reign did not last very long after Western Europe emerged with bigger economic growths between 1500 and 1800. It is believed that Chinas fall could be related to the tyranny of Ming (1368 –1644). In addition, trade and innovation received minimum focus during the dynasty of Qing (1644 –1911) (Chow and Kui-Wai 156). Modern China Significant growth in efficiency and productivity, physical capital and labor contributed to economic growth prior to the year 1978 in China. Essentially, aggregate factor productivity reduced within the same period. Research indicates that the decrease registered scale of 1.07 percent. In addition, additional years of schooling in China resulted in increased growth in annual human capital which reached 1.55 percent. As a result, the total factor productivity (TFP) registered a partial decrease. (Perkins and Thomas 123) In the later years, the actual input versus capital ratio maintained a constant figure. Therefore the roles of total factor productivity were inverted with those of accumulation of capital. Contrastingly, the growth rate in human capital registered a decrease. Consequently the gross domestic product (GDP) of China registered a figure of fifteen percent roughly. The demographic factors in China played a significant role in this statistic(Ackerberg, 35). The total factor productivity registered rapid growths in both non state and agricultural sectors between 1978 and 2007. During this time, the total factor productivity registered annual growth rates of 3.91 percent for the non-state and 4.01 percent for theagricultural sector. Conversely, the state sectors recorded 1.68 percent annual average growth rates in total factor productivity. However, the state registered rapid growth in annual total factor productivity rates which amounted to 5.5 percent(Ackerberg, 38). Looking back into history, China established economic dominance in 1978. This dominance took place despite the significant low level of productivity as compared to other countries. Characteristically, China made the economic after three decades in 2007. In this latter years, China has been making rapid growths in productivity. The total productivity factor registers annual increase of three percent similar to that of United States. However, China may never surpass levels of productivity in United States owing to the current demographic factors. Economic reforms in China took place amidst unchanged political structures and leadership. However, modifications on institutions were made with inclination to favor the influential sector of China’s population. This mainly occurred in government managed corporations. Essentially, China may maintain its status quo if it amends the glitches in its social political aspects. These glitches include inequality in income, corruption and economic malfunctions (Brandt, et al 65). Challenges of the future In the 1980s, China registered an acceleration in its gross domestic product. In this period, the GDP accelerated from 9.1 percent to 9.5 percent. The GDP further registered a significant growth recently to ten percent as a result of the large impact of growth in productivity. This growth was registered in the same period that rates of employment among the Chinese population dropped to below one percent from three percent. This mirrored the decrease in working age population. The one child policy could be highly attributed to this. Additionally, since its alarming statistics in population, China registers a constant reduction of its population (Chang & Peter143). The service sector, the non-state sector and the state sector registered significant growths of productivity in the 1990s. This occurred despite the decrease in growth of productivity within the tertiary sector. On the contrary, other factor within the economic growth fields registered significant increases. Beginning from the 1990s, growth in capital stock contributed to the proliferation of productivity in all sectors. This contribute to the most recent leap in gross domestic product from 6.25 percent in the 1980s to 9.25 percent in the recent past (Eichengreen, et al 56). Additionally, China may record a decrease in its revenues due to decreasing working age population despite an increase in capital investments. Also, the many individuals have opted for ancillary sector employment. This resulted in an increase in productivity within the same sector. In addition, the tertiary sector made significant increase to forty percent from thirty percent. During this time, the primary segment registered a decrease from thirty-two percent to eight percent (Eichengreen, et al 58). In the year 2011, China’s secondary and tertiary and primary sectors contributed nominal value of shares collectively. The later contributed forty-seven percent while as tertiary and primary sectors contributed forty-three and ten percent respectively. As compared to other states, China still performs best in productivity in the primary sector. This therefore mirrors a likelihood of shuffled resources across the various sectors. Across the world, other countries register a five percent increase in the primary shares of output. The developing countries register eight percent in their market shares while as the developed countries economies register two percent growth (Brandt, et al 35). Another challenge that China faces is the social unrests. The disparities between the rural and urban population depict an ever increasing gap. In addition, the massive rural urban migration poses a great challenge. Statistics carried in 2012 indicated that the urban population surpassed the rural population. The numerous riots and demonstrations by employees and farmers indicates social displeasure. In addition, the government influence in corporates contributes to high rates of corruption. In addition, the rates of new cases of HIV keep increasing adding on to other social challenges. Stereotypically, China is considered to be the most polluted state owing to high industrialization (Holz, 148). Possible solutions In relation to the GDP, economists forecast a decrease in private consumption and disposable income. This decrease could be attributed to the banking dogmas in China and absence of significant cover of social security. In addition, China’s restrictions on export of resources could eventually impact on the economy (Li, 50). The tyranny of China’s leadership confines individuals to make savings in banks. Additionally, the government alters interest on deposits made in the bank maliciously. These interest rates often fall below rates on inflation. As a result, the government robs its people of their money. China needs to provide social security for healthcare, education, pensions and unemployment insurance. Also, the government needs to prompt huge savings without fear of loses (Li, 50). Future Forecasts on the economy of China Over the recent years, China made the reemergence to the global scene as the global economic and political actors. This occurred as one of the world’s greatest events in contemporary world history. Over the past decades, China economic growth reaches an average of ten percent. Consequently, the country managed to eradicate poverty among nearly four hundred million of its citizens. The World Bank refers to such initiatives as “unprecedented in the history of the world. For centuries, China maintained dominance over economic growth among the East Asian countries (Holz, 156). Eventually, in 2009, China overtook Germany and became the third largest economy in the world. Through its integration with the economy of the world, China actualized many opportunities for its population. Subsequently, the Chinese currency brings up discussions of contention. On the other hand, China’s contribution to the global trade raises concerns over the workers and industries in the developing and developed countries. In addition. China’s desire for energy became apparent to the world. Subsequently, competition and prices of commodities increase (Brandt, et al 43). Analysts indicate that the rate of economic growth of China in the recent past would render United States a less super power. As a result, great power politics and confrontation would be more frequent. Though it is hard to predict, how well the Chinese economy could soar, forecasts indicate that China would dominate many aspects of the world. Primarily, China would be pushed to conduct its transactions similarly as the U.S does. In addition, if China maintains the large economic growth rates, the governance of Asia would be centered on China. This would help China to easily dissolve its long lasting territorial disputes with its neighbors (Holz, 160). With China taking the global leadership, its interests on security interests around the world would increase. Subsequently, China would be determined to grow its military resources for deployment in regions beyond Asia. For this reason, America feels threatened that China might take charge in limiting its freedom and dominance in foreign states. Despite the tremendous growth depicted by China, the European Union identified a few concerns which could detriment the growth. These concerns include lack of transparency, in elastic non-tariff measures and industrial policies which evades foreign coalitions. Also, the government intervention in China’s economic growth resulted in dominance of state owned ventures, cheap financing and inequality in distribution of subsidies. Finally, the lack of adequate measures to protect and enforce intellectual property rights could hinder innovation (Brandt, et al 55). In its publications, the European commission further considers China as one of the world’s largest economies. Also, being an important partner of the E.C, China plays an important political power. Looking back into history, .China’s acquisition of the WTO in 2001 prompted China to consider bold initiatives in building its economy. Currently, China has made numerous coalitions and partnerships with many companies across the world. Through bilateral investment agreement, China hopes to promote transparency and legal certainty so as to increase the possibility of attracting investors. In trade, China exports consumer and industrial goods to the EC. Consequently, the partnership between the EC and China has increased immensely over the years. Currently, the EC makes its largest imports from China (Ec. (nd)) Conclusion The dominance of China in economic leadership can be traced back into its history. The paper discuses in depth about the rise of China in economic growths. As illustrated above, China lost its dominance shortly in the Qing Dynasty. However, in the subsequent eras of leadership, China registered enormous growth rates in the global scene. Without strategic planning, China may not hold its position for much longer. This is due to the demographic factors and investment trends in association with industrialization in China (Needham and Colin, 45). Work cited http://ec.europa.eu/trade/policy/countries-and-regions/countries/china/ Ackerberg, Daniel , Caves, Kevin & Frazer, Garth. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany. 2006 Brandt, Loren , Van Biesebroeck, Johannes & Zhang, Yifan. "Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing," Journal of Development Economics, Elsevier, vol. 97(2), pages 339-351. 2012 Brandt, Loren, Chang-Tai Hsieh, and Xiaodong Zhu. “Growth and Structural Transformation in China.” In China’s Great Economic Transformation, edited by Loren Brandt and Thomas G. Rawski, 683 –728. Cambridge University Press. 2008 Chang, Tai Hsieh & Peter, J- Klenow, 2007. "Misallocation and manufacturing TFP in China and India," MPRA Paper 35084, University Library of Munich, Germany, revised 15 Jun 2007. Chow, Gregory C., and Kui-Wai Li, “China’s Economic Growth: 1952-2010,” Economic Development and Cultural Change, 15(1),pp. 247-256, Oct6ober 2002. Eichengreen, Barry, Donghyun Park, and Kwanho Shin, “When Fast Growing Economies Slow Down: International Evidence and Implications for China,” NBER Working Paper 16919, March 2011. Holz, Carsten, “New Capital Estimates for China,” China Economic Review 17(2), pp. 142-185, 2006. Li, Kui-Wai, “China’s Capital and Productivity Measurement Using Financial Resources,” Yale University Economic Growth Center Discussion Paper 851, February 2003. Needham, Joseph, and Colin,Ronan, “The Shorter Science and Civilisation in China: An Abridge -ment of Joseph Needham’s Original Text”. Cambridge and New York: Cambridge University Press. 1978 Read More