Economic Policy of China - Essay Example

The two way trade in China has grown faster than it's GDP for the last quarter of the century. (Ken Davies, 2000) After 1979 the Central - Local Relationship was made flexible: This initiated a loose and decentralized management controls over policy making, resource allocation, production issues (Ravi, 2005). The authority of local government people as well as plant supervisors in the industries were increased through the increment in the autonomy of public enterprises. This encouraged the private sector in the services as well as the light manufacturing industry.

Foreign trade and investment was increased through a diversification in the banking systems, development of stock markets, and encouragement of the private enterprises (Baizhu & Feng, 2000). An example of localism is that the central government is subjected to severe budget deficits while revenue generation of local is increasing. The budget stood around -7.0% of GDP in 2006. There has been a trend of changing role of institutions. Structural downsizing of State organs, streamlining departments, and creating institutions like the 'the National Development Planning Commission', 'The State Economic and Trade Commission' and 'Ministry of Commerce' to manage the macroeconomic competitiveness that China is striving to achieve.

According to the purchasing parity as it accounted for 12 per cent of global GDP. Ever since the 1980s the real income has grown approximately 400 per cent per head, and the export import has increased 11 to 13 per cent per year. The manufactured goods constitute 90 per cent of the total exports while the ratio of trade-in-goods to GDP today is around 50 per cent. (Sally, 2004)Today not only are the Chinese commodities exported to the world a large amount of foreign commodities pouring into China.

During the period 1990 to 2001, the world's exports were growing at the rate of 6.3% while in China the exports experienced at 14.9% growth. The import growth rate was 6.5% on average while China had 15.5%. The Chinese products not only prove to be cheap and efficient but also the foreign companies become price competitive by producing in China. (People's Daily Online, 2003)China's trade liberalism is directly linked to the open investment policies. In 2002 the Foreign Direct Investment was $450 million from $90 million in 1990.

It represented 36% GDP of China whereas 6% of the world's total. Most of the FDI stock comes from the manufacturing sector which constitutes about 7% of the world's overall manufacturing. (Sally, 2004)Despite all the good things about the openness of trade there have been some major macro economic issues that the country is currently facing today. The first is the external debt issue. In 2005 the three main indicators of external debt were way below the internationally accepted line; this is an alarming situation for a country like China.

The external debt as compared to the GDP was 12.63%. Another issue is the public debt. China's public debt was 22.1% of total GDP (2006). In 2005 Standard and Poor's revised China's credit ratings saying that China had come out of the instability and made progressive reforms and successfully implemented them. The rating increased to A- from BBB+ for levels above the 'non-investment' status that shows S and P's has a more positive of China. Moody's Investors Service has rated China favorably five notches above the non investment status.