Economic Reform of China - Essay Example

This leads to economic growth of 10% annually. By adopting a mixed economy China is leading successfully. The Government of china has retain strong control over investments and allowed a limited private competition. This results in removing the deficiencies of capitalism and communism. Those countries which follow free trade and non liberal path, dominates the economy like China. The China's success proof is its GDP statistics. Since 1978, the GDP has been double digits. However this progress has lead to number of challenges China is facing nowadays.

These are financial crisis world wide, incompetent banking system, over reliance on exports, inflationary pressures, widening income inequalities etc. In order to create a harmonious society, China Government has to over come these issues. Furthermore trade and foreign investment plays a dramatic role in this revolution. The trade of goods has double so far. Large trade surplus, direct flow of foreign investments and heavy purchases of foreign currency makes China the biggest foreign currency reservoir holder.

Two factors contributed tremendously to the growth of economy in China. One is Heavy Capital investment either by domestic savings or by foreign investments. And second factor is quick yield growth. This revolution leads higher effectiveness which improves the output. The result is increased resources for extra investments in the economy. Moreover China has a higher rate of saving, as most Chinese has saved a lot by producing profit from State owned enterprises. As a result savings as percentage to GDP has raised tremendously upto 50% which is highest rate in the world.

Another factor which plays a major role in this revolution in China is Productivity gains. The enhancement in output is because of allocation of resources to the productive uses specially trade, services and agriculture sectors. The government authorities were allowed to establish various enterprises on market rules. Direct Foreign Investments with its new technologies boosted the economy as well. DIRECT FOREIGN INVESTMENTS IN CHINA:The major factor for China's economic growth is Direct Foreign Investments.

China's FDI usage has expanded from $636 million to $75 billion by the end of 2007.Manufacturing is the major part of the economy where larger portion of FDI are utilized. Almost 55% of total FDI is consumed up for manufacturing which leads 610,000 companies to flourish and almost 28 million people will be engaged by these firms. CHINA TRADE PATTERNS:China becomes the trading power in result of economic revolution. Chinese exports were $1218 billion by the end of 2007 and its imports were $956 billions.

China has grown dramatically during past years with average annual growth rate is 29%. Imports over this