Discuss about the China Economic Performance from 2007-2016.
In 1820, China was ranked the largest economy in the world but today it’s ranked the second largest. The Qing dynasty was approaching its 3rd century imperial dynasty in China during this period and this economy held the largest proportion of the world’s GDP. If measured in purchasing power parity terms, this economy is still the largest, but in terms of GDP it is the 2nd largest since we entered the 19th century. The reason as to why it fell behind is because of the increased industrial revolution in the western world. The catch up begun in 1978 at the onset of reforms; its GDP per capita was similar to that of Zambia; thus this economy was said to be very poor (Eskart, 2016). The average GDP growth experienced in China from 1978 to 2014 was 10% annually. This resulted in its GDP per capita rising by a 40-fold; this was from 155 US dollars in 1978 to 7590 US dollars by 2014. It is argued to have had an unparalleled achievement ass it raised over 800 people out of poverty. There is still a need for more development in China as despite the achievement, its GDP per capita is still below the world’s average.
The success of this economy was driven by it becoming the largest manufacturing hub; it specialized in labor-intensive manufacturing of cheap goods that were exported all over the world (FocusEconomics, 2017). This economy is a major trade partner with many other world economies. Since 2010, this economies has been ranked 1st in the exportation of merchandize goods, but 2nd in importation. It is ranked 3rd in the importation of commercial services, but 5th in exportation.
China Real GDP
Viswanathan (2014) defined GDP as the money value of the total goods a country produced in a period of one year. It is a good measure of economic growth as it determines the level of the living standards. Viswanathan noted that an increase in GDP results in an increase in the standard of living. The measurement of GDP is done every year and comparison is done with the previous year to determine how much growth has taken place. At high value of GDP, the workers receives more compensation to meet some additional demands. GDP in nominal terms has not been adjusted for changes in prices as the case for the real GDP,
China Real GDP Growth
GDP growth has been said to be the percentage change of GDP from one period to the following period. It is a measure used in predicting the changes in economic performance. A fall in GDP growth rate requires the intervention by the policy makers.
Fig: China Real GDP Growth Rate
The graph for China real growth rate indicates a falling trend. Initially, its growth rate was very high (of above 10%). For the three years before the GFC, the growth rate was on a rising trend. It rose from 11.3% in 2005 to 14.2% in 2007. The 2007 record was the highest for the 10 year period. The rate fell to 9.6% in 2008 and 9.2% in 2009 respectively. The recovery in 2010 resulted in the rate rising to 10.606%, however, it was followed by a falling trend for the following four years. In 2014, this economy recorded the lowest real GDP growth rate of 7.3%. This economy has the world’s proportion of total population accounting to 18%.
China Real GDP per Capita
This is the value that shows the amount on money that any person is the economy is estimated to be earning. It is obtained by dividing the total GDP by the country’s total population (Pettinger, 2011). This measure is used as an estimator of the standards of living and commonly used for comparison between different countries (Amadeo, 2017).
Fig: China Real GDP per capita
Series 1: Argentina Real GDP per capita
Series 2: China Real GDP per capita
The trend for China Real GDP per capita is rising. Despite the impacts of the GFC that occurred in 2008-09, the china Real GDP per capita rose year after year from 2005 to 2014. This is an indicator of improve standard of living for China. In comparison to the 1st series for the Argentina economy, the living standard in China is better than that of Argentina. The improvement on China Real GDP per capita is rapid compared to the slow improvement on that of Argentina. Although the GFC did not have an impact on China’s Real GDP per capita, Argentina recorded a lower value during the same period. The change in value for china had more than doubled by 2014. It was 18,436.12 in 2005 but 41,035.39 in 2014. The change in value for Argentina was only by a small proportion.
Government’s Measures
The growth of China GDP has been attributed by its undefined objective of eliminating poverty; over the years, its GDP per capita has gone up significantly and this has acted as a booster to personal consumption. This economy has also centralized the control of the industrial production by owning the enterprises; this has enabled the government to be able to plan its output targets for which to follow. According to Eskart (2016), there was a gradual liberalization of prices under Deng’s leadership (the price system became dual and allowed for a market price and a quota), the fiscal autonomy granted to the sub-national government was greater; the incentives were to stimulate investment and improve growth and expansion of the private sector. Its closed modern banking system has opened this economy to trade.
Unemployment Types
Unemployment is present when people have no jobs, they are actively seeking, and any job vacancy available can be better for them. The typical types of unemployment are divided into four groups. Cyclical unemployment occurs time to time in an economy and is unavoidable. The economy has two business cycles; the boom and the burst period. The boom period is when many businesses performance is on the rise and thus the businesses are expanding; thus these businesses demand additional labor to facilitate the expansion. On the contrary, the burst business cycle means that there is poor business performance; when demand for goods is low, there is no need for a business to employ additional labor since the additional goods produced will be sold at a lower price. Thus businesses cut the number of their employees; those laid off become cyclically unemployed.
Structural unemployment results from changing business structure; for a firm that opts to invest more in technology, efficiency is created and the new technology may enable a single person to carry out various processes at the same time (Grimsley, 2017). Hence, the demand for labor falls; this forces some workers to be laid off and become structurally unemployed. The same case applies for the case of increased manufacturing costs in a certain area; the manufacturing firm may find it difficult to operate in the said area and opt to shift its operation to a new territory where costs may be lower. This shifting may not be compatible with all the workers and thus they are left behind with no job and are said to be structurally unemployed.
Frictional unemployment is the 3rd type resulting from information asymmetry; the person looking forward to be employed and has the right skills may not be aware of the employing companies, and also the employing companies are not aware of the existence of this person. According to Nash (2017), it takes time before this awareness is created; the two parties are on the search and may take time before they match. It’s also the case for those people who cannot accept to do a certain job because its compensation is low and opt to remain unemployed waiting for a job with a better compensation. The last type is the seasonal unemployment mostly experienced in agricultural farms since labor in agriculture is not required all year long. The same case applies for tourism activities; there is less flow of tourists during the winter as compared to summer. Some people who offer various services to the tourists remain unemployed until the summer arrives.
Unemployment Trend in China
Fig: China Unemployment Trend
The graph for China unemployment rate gives a falling trend for the 10 year period (2005-14). Before 2008, this economy was performing well and thus its unemployment rate was falling. It hit the lowest level of the 10 years in 2007 exactly a year before the global financial crisis. In 2008, the unemployment rate rose to 4.2%, a further rise and the highest record was made on 2009 (4.3%). A recovery was experienced in 2010 when the rate fell to 4.14%. The falling trend continued until 2013 when it started rising again. Generally, the China economy can be argued to be faced with a high unemployment rate challenge.
Government Measures
The role of the government it to maintain the employment rate at very high level. This can be ensured that there are plentiful of jobs for the whole population. This economy’s investment level is approximately 50% of its total GDP; for this reason, it has been creating many jobs opportunities. The economy has also put up some strategies to promote the expansion of the private sector as it is the major source of employment. The economy is one of the major importers of commercial services improving the service sector and thus creating additional employment. The government has also eased its regulations on business investors. For instance it has eliminated the minimum capital requirements for starting a new business (Heritage.org, 2017). This has resulted in increased investment in new businesses by investors and has thus created many jobs.
Inflation in China
Fig: China Inflation rate
The above graph shows the changes in China inflation rate for the period between 2005 and 2014. The trend exhibited by change in China inflation rate is positive. Initially, the inflation rate was lower. The rate rose rapidly to 4.8% in 2008 and a further rise to 5.9% in 2008. The change in the inflation rate was negative 0.7% in 2009, and this is the lowest record made in 10 years. After the recovery in 2010, the rate rose to 3.3%, and a further rise to 5.4% in 2011. Since then, the rate started falling all the way to 2014
Typical Causes of Inflation
There are three typical causes of inflation. One is the increased money supply that results from government policies. Increased money supply raises the income level for the households making them to demand more goods and services. Increase in demand without a corresponding increase in supply results in a price rise (Gillespie, 2007). This inflation caused by excessive demand is the demand-pull inflation. Secondly, the costs of production may contribute to rising inflation. When the raw materials’ prices goes up, for instance the oil price goes up, the production process for the companies dependent on oil becomes more expensive. Since the goals of businesses is to maximize revenue, they transfer the extra costs to the final end consumer through charging higher prices. The last cause is the built-in inflation which is caused mostly by the first two causes; when price rises, workers try to keep up by demanding increased wages, employees raises the cost of output to facilitate the same.
Government Measures
Maintenance of Price stability is a primary for an economy since price determines many operations on the economy. The government employs contraction ally monetary and fiscal policies to lower the inflation rate during a period when it’s very high. The government also employs the strategy of inflation rate targeting so as to ensure that there is a fixed range at which the inflation rate should be maintained. Wakatabe (2016) noted that this is the best measure for price stabilization.
Conclusion
Many world economies including China were greatly affected by the 2008-09 GFC. The recovery process has been a challenge to many economies. For instance, it can be concluded that China has not yet fully recovered from the GFC impacts since the unemployment level has not gone down to the same level recorded in 2007 before the crisis. This economy has succeeded in lifting a large number of people from poverty and this has contributed significantly to its GDP. The economy has implemented expansionary monetary and fiscal policies to stimulate economic growth. In addition, the government has also implemented policies to promote different sector in the economy which has helped in raising the employment rate. Despite the large population, China is an economy of rising GDP per capita.
China has control over its unemployment rate since there are many policy implement that have led to the creation of many jobs. Thus, the unemployment rate may be projected to continue falling if the policies still stands in place. Inflation is not a big challenge for this economy as it is managed in the inflation targeting range. The inflation rate is falling and thus allowing room for the implementation of government policies
References
Amadeo, K. (2017). Why the World’s Largest Economies Aren’t the Richest. The Balance. Retrieved 11 August 2017, from https://www.thebalance.com/gdp-per-capita-formula-u-s-compared-to-highest-and-lowest-3305848.
Eckart, J. (2016). 8 things you need to know about China’s economy. World Economic Forum. Retrieved 11 August 2017, from https://www.weforum.org/agenda/2016/06/8-facts-about-chinas-economy/.
FocusEconomics. (2017). China Economic Outlook. FocusEconomics. Retrieved 10 August 2017, from https://www.focus-economics.com/countries/china.
Gillespie, A. (2007). Foundations of economics. Oxford [u.a.: Oxford Univ. Press.
Grimsley, S. (2017). Structural Unemployment: Definition, Causes & Examples. Study.com. Retrieved 12 August 2017, from https://study.com/academy/lesson/structural-unemployment-definition-causes-examples.html.
Heritage.org. (2017). China Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. Heritage.org. Retrieved 10 August 2017, from https://www.heritage.org/index/country/china.
Imf.org. (2017). Report for Selected Countries and Subjects. Imf.org. Retrieved 9 August 2017, from https://www.imf.org/external/pubs/ft/weo/2016/02/weodata/weorept.aspx?sy=2005&ey=2014&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=73&pr1.y=9&c=924&s=NGDP_R%2CNGDP_RPCH%2CNGDPRPC%2CPCPIPCH%2CLUR&grp=0&a=.
Nash, J. (2017). Three Types of Unemployment: Cyclical, Frictional & Structural. Study.com. Retrieved 12 August 2017, from https://study.com/academy/lesson/three-types-of-unemployment-cyclical-frictional-structural.html.
Pettinger, T. (2011). GDP per Capita Statistics. Economicshelp.org. Retrieved 11 August 2017, from https://www.economicshelp.org/blog/343/economics/gdp-per-capita-statistics/.
Viswanathan, B. (2017). What is the meaning and significance of GDP per capita? Why does India have such a low GDP (nominal) per capita? Quora.com. Retrieved 11 August 2017, from https://www.quora.com/What-is-the-meaning-and-significance-of-GDP-per-capita-Why-does-India-have-such-a-low-GDP-nominal-per-capita.
Wakatabe, M. (2016). China Should Adopt Inflation Targeting. Forbes.com. Retrieved 12 August 2017, from https://www.forbes.com/sites/mwakatabe/2016/01/26/china-should-adopt-inflation-targeting/#51cf87632321
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