Reasons for China Growth Rate - Example

GDР Student’s Name: Course Code: Tutor’s Name: Date of Submission China’s GDP Gross domestic product is the value of all the goods and services produced and provided in a country for a period of one year. It one of the most important tools used to measure the country's economy. The higher the GDP the better the economy, a better economy is usually characterised by low employment rate, higher wages as companies demand more labour to meet the growing economy as well higher stock prices. China has been experiencing rapid economic growth which has been reflected by its increasing GDP. Since the global financial crisis of the year 2008, China has recorded a tremendous economic growth making it one of the largest contributors to the world growth (The World Bank, 2017). In 2008, the country recorded a GDP of $4,600.59 billion which is equivalent to 31, 951.55 billion Chinese Yuan (The World Bank, 2017). This represented 9.7 percent of the real growth. In 2009, the GDP in China increased to $ 5, 110. 25 billion, this was equivalent to 9.4 percent real growth in the same year (The World Bank, 2017). Since then the GDP value in China has been increasing considerably over the years. On 2010, it recorded 6, 101.34 billion which was equivalent to 41, 303.03 billion. In the first quarter of 2017, the country recorded an expansion of 6.9 % from 6.8% in the last quarter of 2016 (The World Bank, 2017). This was an increment from $ 11, 255 billion in December 2016. Previously in 2015, the country had recorded a GDP of $ 11, 063.07billion. This was still an increment from the previous year where it had recorded $ 10, 483.40 billion. In 2013 China’s GDP hit $9,611.26billion which was still more than $ 8,560.28 billion, $ 7,575.72billion, $ 6,101.34 billion in 2012, 2011 and 2010 respectively (The World Bank, 2017). Reasons for China growth rate According to The World Bank (2017), there has been massive government spending in China. Government spending can be categorised into two or the government can spend its money in two major ways. In one category, the government is a consumer of goods and services produced and provided in the country. The other way is where the government spends in building industries as well as infrastructure in the country (The World Bank, 2017). China has been spending its revenue in building state-owned industries which dominate the economy. This makes the country to produce more goods in the country, therefore, raising the country's GDP. The goods produced in the country are either consumed in the country or exported to other countries, therefore, increasing its GDP (The World Bank, 2017). The growing state investment has played a very significant role in the expansion of the economy. The fact that Chinese state-owned companies are less profitable than privately owned companies has been well dealt with by the government. The companies have provided employment to the people of China elevating about 800, 000 citizens from absolute poverty to middle-income earners (The World Bank, 2017). In June 2016 for example, investments that are state-owned had grown their fixed assets by 23.5 percent compared to January the same year. During the same period, the privately owned assets in private companies had reduced by 2.8 percent (The World Bank, 2017). Some of these state-owned companies include CNOOC, Sinopec as well as PetroChina. China as a country has been attracting foreign investors in the country for the last one decade. This has also played a vital role in the growth of the country's GDP. The country has been encouraging foreign companies to open factories in the country rather than importing the goods they manufacture (The World Bank, 2017). This has helped the country’s economy to grow in several ways. They have contributed significantly in employing Chinese employees. This has helped in reducing the unemployment rate which is one of the indicators of an expanding economy (The World Bank, 2017). Chinese companies have also been benefiting from the foreign companies. Some try to adopt the technology that has come in the country from the foreign companies. Workers in the country have also learnt and adopted new production methods from the foreign industries, therefore, producing more and increase the country's GDP in the long run (The World Bank, 2017). Foreign companies sometimes come to the country with their own experts. These skilled experts help in developing Chinese workers as they acquire new skills in the production process. This has made the country to develop its own labour force to be used in the state-owned companies, therefore, expanding the economy. Foreign factories based in China also share the technology that they use therefore benefiting Chinese factories directly and therefore increase the goods being produced in China and the GDP in the long run (The World Bank, 2017). China has a huge population. In 2016, for example, the population was estimated to be 1.383 billion (The World Bank, 2017). This population has helped industries in the country with labour. The country has also recorded great rural to urban migration when citizens go to look for work. Underemployment and unemployment have been the major cause for this migration. This has made the government of China re-plan some rural villages where villages have been demolished to come up with settlements of manufacturing (The World Bank, 2017). This has been reducing the rural-urban migration and more labour is put into use in the rural areas. Due to the labour supply, manufacturing activities have increased in the country and economic growth has taken place as indicated by the country's GDP (The World Bank, 2017). The rapid population growth rate being experienced in China has also provided economically active citizens. Consequently, the country has experienced rapid industrialisation which makes it possible for more population growth to take place. Industrialisation has also played a significant role in increasing the country's GDP and therefore economic expansion is realised (The World Bank, 2017). Despite the high population growth rate, the rate of unemployment has reduced by 4 percent in 2016 (The World Bank, 2017). The high unemployment rate that had affected the country earlier reduced the wage rates significantly. This is because if workers demand more wages, there will be other unemployed citizens who will take the available jobs at a lower rate. In 2016 for example other East Asia countries wages were ten times more than China (The World Bank, 2017). Due to these wages, companies in China have had their profit margins increase and more foreign direct investment has taken place from other countries such as America, Japan as well as European companies. The continued attraction of these foreign companies in China due to low wages has played a major role in increasing the country's GDP (The World Bank, 2017). China has been in the forefront in incorporating women in their manufacturing industries. Some western cultures have been analysing gender divisions but this has little relevance in economic growth of China. The one child policy in the country has also reduced the time spent by women in bringing up children (The World Bank, 2017). This has made them participate more in activities of the industries, therefore, increasing the country's GDP. Leadership cannot be left out in the economic expansion of any country. It plays a vital role in putting or availing the necessary environment for any growth to be realised. China as an example has demonstrated strong leadership and sound political environment (The World Bank, 2017). The political system in China has facilitated free market economics. The state has the overall control over all economic activities in China rather than private businesses. It is the responsibility of the government to make all decisions relating to the country's economic activities (The World Bank, 2017). The adoption of five year plans since the year 1953, the Chinese government has enacted some reforms that are very significant in expanding its economy (The World Bank, 2017). In the twelfth five year plan, between 2011 and 2016, the country managed to spend 2.2 per cent of the GDP on development and research (The World Bank, 2017). This has helped the Chinese government to be more innovative in their production activities and hence increase their GDP. The leadership in the government has taken more responsibility to the state than to themselves. This has enabled the Chinese as well foreign factories in China enjoy good political environment for businesses success (The World Bank, 2017). China's growth has been facilitated by export-led growth. This is a strategy where the country has substituted import industrialisation with more exports from the country. Most consumer products which have been imported to be consumed in China are now being manufactured in the country (The World Bank, 2017). The middle class which is nowadays growing at a higher rate in China are consuming products which are made in the country rather than importing. These include office and house furniture as well as cars and domestic white goods, therefore, increasing the country's GDP (The World Bank, 2017). The country has also come up with special economic zones where the country has come up with more attractive businesses in its cities. The zones have been provided by incentives from the government for them to increase their business and therefore expanding the economy. Private enterprises have also been operating together with state-owned ones, therefore, increasing the GDP more. The growth has also been associated with economic diversification as wee as reduced illiteracy levels (The World Bank, 2017). The large market in the country and the neighbouring countries has also played a significant role in making the country grow. There has also been more energy supply from nuclear power plants as well as hydroelectricity from the country energy bases. The government has installed more infrastructures such as roads and the railway system making transportation of goods better and hence more GDP (The World Bank, 2017). Challenges being faced by China Despite the economic growth seen in China, the country has also been facing some challenges. These include the shrinking supply of money as well as weakening currency. Previously China has been relying on investments from debts (The World Bank, 2017). This cannot be sustainable for a long period of time and this makes China be a developing economy despite the economic expansion. If the country tampers with its interest rates, the economy would be put at a higher risk and this makes it a challenge to the economy. If the economy decides to reduce the supply of housing, its financial market as well as the industry sector will be affected more. Homes have been overabundant in China (The World Bank, 2017). This has caused the country pressures of deflation as the government try to reduce the home's supply. China has also been facing the high rate of corporate loan default. Between the first and the third quarter of the year 2015 for example, load defaults increased by 43 percent (The World Bank, 2017). This has been exposing the banking sector in the country and therefore it becomes a challenge to the country when corporations default their loans. This has also been contributed by the strengthening US dollar making payments of loans to increase. Additionally, China has been experiencing high capital outflows since 2015 (The World Bank, 2017). This may have resulted from overexposure to the US dollar as well as competition between banks on their rates of deposit. There has also been the challenge of adjustments to industries. The high rate of overproduction in the industries based in China can result to wastes which will lower their GDP. The country is also experiencing constraints on the environment as well as the available resources due to the high demand for raw materials and energy. There is also pressure to reduce emissions of carbon dioxide to the atmosphere due to production activities this will affect the production activities in the country and may affect the economic growth in the long run due to reduced GDP (The World Bank, 2017). China is also facing risks of a slowdown in its economic growth. This is due to the current situation that is even making some companies bankrupt. The companies’ bankruptcy will affect production and the GDP will reduce in the long run (The World Bank, 2017). Reference The World Bank (2017, March 28). World Development Indicators, retrieved from, http://databank.worldbank.org/data/reports.aspx?Code=CHN&id=556d8fa6&report_name=Popular_countries&populartype=country&ispopular=y Read More