Economic Growth of China - Example

ECONOMIC GROWTH OF CHINA {Insert university name} {Insert instructor’s name} {Insert student’s name} June 18, 2012. ECONOMIC GROWTH OF CHINA The growth of the China’s economy dates back in the year 1978. This was the era when reforms started taking place. The reforms were known-‘gaige kaifeng’ which meant reforming and opening up and they took place in the year 1978 under the rule of Deng Xiaoping. With introduction of these reforms there was rapid economic growth in China and it expanded its private sector and there was tremendous increase in foreign investment in the country (Chow, 2010). Chow (2010) adds that Chinese economy is regarded as the second largest in the world and the fastest growing in the world. Her annual average growth is estimated to stand at 10%. The GDP stood at $ 8394 a report by the IMF with industries taking the major role. It is believed that one of the major causes of the China’s economic growth is that most of private sectors were allowed to operate freely. However, as a result of foreign investment, there was a need to upgrade the infrastructure and construction of industries in China. All these led to creation of employment hence there was an increase in income for the citizens of China resulting into improved economic growth. Consequently, this led to transfer of technology amongst the Chinese as well as exportation of manufactured products thus rose of export to 19% from early 1980s to early 2000s (Riedel, Jin and Gao, 2007). During these reforms, China mostly embarked to liberate its economical reforms. These reforms enabled the economy of China to have a huge GDP growth rate up to the present days. The Gross Domestic Product stands at 9.4% which translates to $24.6 trillion. Today China shares 25% global growth which is higher than that of USA which stands at 20 (Chow, 2010) Table 1, China’s average annual real GDP growth rate (2007-2012) Time period Average annual growth rate 2007 14.2 2008 9.2 2009 9.6 2010 10.4 2011 9.2 Moreover, because of trade with its patterns Chinese economy have grown through out the years since reform (1979-2006). To this extent the GDP has grown compared to other countries with its trading members. In China as compared to other countries as USA and Japan the prices of goods and services are extremely low and this has an impact in the economic growth (Chow, 2010). Additionally, the exchange rate has improved over the years and the forex conversion has become cheaper in China than in US. Additionally, the living standards have become low in China than in the US while the PPP- purchase power parity is higher in the US. The table below shows comparison of USA Japan and the China’s GDP on per capita GDP in nominal USA dollar and PPP in the year 2005. Country Nominal GDP ($ billions) GDP and PPP ($ billions) Nominal per capita GDP Per capita GDP in PPP China 2262 8357 1700 6386 USA 12,458 12458 42130 42130 Japan 4571 3914 35880 30720 The liberalization of China has grown into five phases since 1978. In phase one (1978-1989) which is considered to be early liberalization as it is known was carried in selected areas with focus on attracting FDI in manufacturing industries. In second phase (1987-1991), this was when foreign exchange control and monitoring control was started. And in third phase 1992-1996 during these phase there was gain on reform and external liberalization and it was during this time when China achieved the current convertibility in the late 1996. During phase four (1997-2000) there was Asian crisis and capital outflow become a problem and hence there was concern in devolution RMB and also the falling differences between domestic and foreign interest rate. Here there was sharp decline in capital accounts. In the last phase (2001 to present) China joined WTO and this marked a new era for the China’s external liberalization (Riedel, Jin and Gao, 2007). According to Chow (2010) China is feared to be the next superpower. According to Riedel, Jin and Gao (2007) China has to keep and maintain its global power. In continuing with the policy, the Chinese government has to improve in maintaining of currency at artificial low levels. This will enable it to keep the competitiveness in export. Therefore it should make Yuan to make into convertible currency regardless with the fact of loosing global export advantage and to show the balance of continuous growth. In maintaining its currency against manipulation China will continue to maintain its export advantage. This is because of the importance in growth in China’s economic growth which is to be taken as a priority. Furthermore, education has made the economy of China to be strong but this has improved because of the pool of human resources in the entrepreneurship (Riedel, Jin and Gao, 2007). China’s liberation has come along way its entry in WTO had a great impact on it and the world. Though recently it had entered into globalization and the questions lingering is whether it will still have influence on the economy. According to (Naughton, 2007) transition in China’s economy my not continue and describe it as being trapped, but this trend can not be taken as granted. Additionally, the political elite have continued to enhance economical growth as it is essential in maintaining its own power. For example manufacturing which is the largest and the biggest and strongest center of china’s economy has been poisoned for further upgrading (Zhang, 2001). However, there are some other perspectives which are to be used in viewing Chinese economy-Domestic and international. Domestically, there are large unreformed investment mechanisms allowing government in decision making to help in channeling funds in organizations which are mostly banks which controls investment projects. Internationally, through global access it has made China to be a globalization beneficiary and which have remained to be the most Chinese prospects (Riedel, Jin and Gao, 2007). Though there are imports on energy, materials, equipment among others that are equally important. As by now China is in the time of transition of power in the Communist party and a lot of cases have been rising such as the scandal of Bo Xilia which has been a significant civil arrest. The other development the government of China has to do is a slowing economy. This because of advancement in prosperity in the economy, due to growth in living standards some of the population will to go without the basic human rights even though the economy has shown a sign of falling. Therefore to ensure that there is continuous economic advancement to maintain its population, the Chinese government has to utilize mechanisms in it reach not forgetting artificially keeping its currency low (Riedel, Jin and Gao, 2007). According to Zhang (2001) transformation in the industries in China and predicts that the brands of China will emerge to be of world class. However, Naughton (2007) had numerous questions about China and they come into a conclusion that if China has to become one of the major market forces for food of the world they should if they have transformed their structures. Moreover, due to increase in population growth in the country there could be a crisis of social unrest and economic difficulty as the population of the citizens was steadily increasing (Laurenceson and Chai, 2003). This increase of population was due to the benefit of advancement of technology which all was brought about by higher fertility rate. Technological changes according to him were so fast that the fertility rate could not support. It has been realized that China’s growth had great impact on other countries (Wu Yanrui, 2004). Being a large player of the economy through trade it had a great impact on prices in that it remained unimportant in the world economy through sufficient conditions which mostly depends on biasness of its growth. This was due to its trading nature where it was supplying its products worldwide. The terms of trade of China had appositive impact on the world’s economy (Shang-Jin, 1993). Furthermore, China being a large country and the growth had been positive on trade effects on countries like USA. Moreover those developed Asian economies had a trade links with China. In addition China’s growth in trade had been positively experienced in all regions. The Chinese force was so high that it had a great competition (Zhang, 2001). Rapid growth in China’s economy has made it involve in illegal trade. According to observation made by Global Witness 2005 it was that the trade a cross the borders had increased by 60% in 2001 and 2004 and above 90% of the trade was not legitimate. They practiced this trade with Thailand in illegal logging through their logging companies (Laurenceson and Chai, 2003). According to, his observation came from Indonesia on the consequent of import of fuel. As there is raise in industrialization in China so the rise in consumption of energy to run the industries. In regard that it imports most of its energy use it is really impossible for China to sustain fuel rising subsidies, hence there is a cross-border benefit among the poor nations thereby enhancing support of the poor (Wu Yanrui, 2006). The other increase in fuel consumption in China comes as to the matter of climate change. Though China is the second leading country with gases being emitted from green-house, these gases which are mainly sulphur coal. Riedel, Jin and Gao (2007) recommended that due to this high energy consumption level required by China and the mode of generation it will have a great impact on the global climate change. Moreover, through high demand of energy to run the industries in China there has been a greatest impact on Asian economies. Hence there has been a demand of energy. Its consumption has almost doubled between 2000 and 2010 rising annual consumption growth rate of 4.6% in 2000s and 3.7% in 2010s per annum (Wu Yanrui, 2004). This high energy consumption is being driven by growth in economy which is characterized by the presence of industries, urbanization and increase in the use of motor vehicles (Laurenceson and Chai, 2003). Table 1 shows comparison of energy consumption of China compared to there Asian countries. Year India Japan and S.Korea China Quadrillion Btus Index(2001=100) Quadrillion Btus Index(2001=100) 2007 21.1 100 17.3 100 2008 30.2 144 27.0 156 2009 43.7 207 38.8 225 2010 45.1 214 42.1 243 Additionally, China has been the largest user of metals apart from industrial commodities. Even though there was only increase in some type of metal as aluminum, copper among other. This made China to have an increase in share of world’s metal demand. This had to rise by 3% from 7-10% in 1993 up to 20-25% in 2003. In the present, China accounts for 30% of the world’s demand of the metal an aspect that is likely to make it a superpower in the future (Wu Yanrui, 2004). In conclusion major factors which have facilitated the growth of the Chinese economy is investment of large scale capital and rapid growth in productivity. The economic reforms have enhanced efficiency in economy and the mentioned are likely to affect the future of the China’s economy. References Barro, R. J and Xavier, S. M. 2004. Economic growth. Second edition. Cambridge, MA:MIT press. Chow, G. 2010. Interpreting China’s economy. New York: World Scientific. Laurenceson, J. and Chai, C. H. 2003. Financial Reform and Economic Development in China. London: Edward Elgar Publishing. Naughton, B. 2007. The Chinese economy: transitions and growth. London: MIT Press Riedel, J. Jin, J. and Gao, J. (2007). How China Grows: Investment, Finance, and Reform. New York: Princeton University Press. Shang-Jin, W. 1993 open door policy and China’s rapid growth: evidence from city-level data’ National Bureau of Economic Research NBER working paper 4602 Wang, Y. 2006. Cheap labor and China’s as the world factory. Kevin Honglin Zhand, eds. New York: Routledge. Wu Yanrui, 2006. Economic Growth, Transition, and Globalization in China. New York: Edward Elgar Publishing. Wu Yanrui, 2004. China's Economic Growth: A Miracle with Chinese Characteristics. London & New York, Routledge Curzon Press Ltd. Zhang , K , H, 2001. How does foreign direct investment affect economic growth in china? Economic of transition, 9 (3):679-693. Summary for power point Introduction The growth of the China’s economy dates back in the year 1978. China expanded its private sector and there was tremendous increase in foreign investment in the country. Chinese economy is regarded as the second largest in the world and the fastest growing in the world. China annual average growth is estimated to stand at 10%. The GDP stood at $ 8394. Causes of China’s economic growth Private sectors permitted to operate freely Need for improved infrastructure resulting into creation of employment Economic reforms resulted into liberation of Chinese economy Today China shares 25% global growth which is higher than that of USA which stands at 20 Education has made the China’s economy to be strong The political elite have continued to enhance economical growth as it is essential in maintaining its own power. Phases of China’s economic liberalization In phase one (1978-1989)-concentrated on attracting FDI manufacturing industries In second phase (1987-1991) - the foreign exchange control and monitoring control was started In third phase (1992-1996) - there was gain on reform and external liberalization Phase four (1997-2000) there was Asian crisis and capital outflow become a problem In the last phase (2001 to present) China joined WTO and this marked a new era for the China’s external liberalization. Effects of economic growth in the China’s future economy China will to become one of the major market forces for food of the world they should if they have transformed their structures. Improved technological changes resulting into high fertility rates thus high population The terms of trade of China having positive impact on the world’s economy Rise in industrialization resulting into high consumption of fuel impacting negatively on the global climate. China is likely to become a superpower in the future Read More