China: Difference between revisions
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==Economic growth== | ==Economic growth== | ||
: Since 1978 China has had an annual eight percent growth rate within their economy. This impressive growth rate spawned from the government’s decision to abandon their strict central planning and convert to a market based economy. By doing so they opened their economy to foreign trade and investment. This has been a key factor in their economic growth (40% of GDP is investment driven. Along with the conversion to a market based economy, a huge step was the countries admittance to the World Trade Organization in 2001. | : Since 1978 China has had an annual eight percent growth rate within their economy. This impressive growth rate spawned from the government’s decision to abandon their strict central planning and convert to a market based economy. By doing so they opened their economy to foreign trade and investment. This has been a key factor in their economic growth (40% of GDP is investment driven.) Along with the conversion to a market based economy, a huge step was the countries admittance to the World Trade Organization in 2001. | ||
: China’s amazing economic growth is historically impressive. No other country has been able to have an annual growth rate of 8% over a period of twenty years. In comparison, the United States has a 3% annual growth rate over a hundred years, and Japan’s growth was limited to 3.85% annually from 1971-1991. The Chinese government realizes the problem’s they face with rapid economic growth and aims to reduce their growth rate down to a 7% annually. This has proven to be a difficult task because as recently as the year 2004, the economy was growing at a 9.7% rate. Such a rapidly growing economy brings unstable factors to the Chinese economy that, if exacerbated, could send China into a possible depression. Some of these factors are unemployment, currency appreciation and banking reform. | : China’s amazing economic growth is historically impressive. No other country has been able to have an annual growth rate of 8% over a period of twenty years. In comparison, the United States has a 3% annual growth rate over a hundred years, and Japan’s growth was limited to 3.85% annually from 1971-1991. The Chinese government realizes the problem’s they face with rapid economic growth and aims to reduce their growth rate down to a 7% annually. This has proven to be a difficult task because as recently as the year 2004, the economy was growing at a 9.7% rate. Such a rapidly growing economy brings unstable factors to the Chinese economy that, if exacerbated, could send China into a possible depression. Some of these factors are unemployment, currency appreciation and banking reform. | ||
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==Foreign Trade== | ==Foreign Trade== | ||
: In the 1980’s | : In the 1980’s China realized that foreign trade was key to their economic growth. They slashed tariffs, there are no importing/ exporting licenses needed for most products and there are no more government trading monopolies. There trade surplus is something that should be taken into account. In 2003 the U.S. accounted for one fifth of the value of Chinas exports equaling 92.5 billion dollars. Their imports were only equal to 33.8 billion dollars creating a surplus of 58.6 billion dollars. This is a 30 billion dollar increase from between 2001-03. | ||
<center>[[Image:Chart.gif|thumb|Description]]</center> | <center>[[Image:Chart.gif|thumb|Description]]</center> | ||
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==Oil Consumption & Projections== | ==Oil Consumption & Projections== | ||
: In 2004 China was the second largest oil consumer behind the U.S. at 6.5 million barrels of petroleum products a day. They surpassed Japan in 2003 and are expected to consume 14.2 million barrels a day by 2025, while importing 10.9 million barrels. Further more over the past four years China has accounted for 40% of the demand of the world’s oil; with a year by year growth of one million | : In 2004 China was the second largest oil consumer behind the U.S. at 6.5 million barrels of petroleum products a day. They surpassed Japan in 2003 and are expected to consume 14.2 million barrels a day by 2025, while importing 10.9 million barrels. Further more over the past four years China has accounted for 40% of the demand of the world’s oil; with a year by year growth of one million barrels a day. | ||
: In 1998 the Chinese government recognized that they needed to convert most state owned oil and gas assets into two vertically integrated firms. They created the China National Petroleum Corporation (CNPC) and China Petrochemical Corporation (Sinopec). CNPC deals mostly with oil and gas exploration while Sinopec deals with refining and distributing oil and gas. | : In 1998 the Chinese government recognized that they needed to convert most state owned oil and gas assets into two vertically integrated firms. They created the China National Petroleum Corporation (CNPC) and China Petrochemical Corporation (Sinopec). CNPC deals mostly with oil and gas exploration while Sinopec deals with refining and distributing oil and gas. | ||
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[[Image:Consumption_us.gif|thumb|Description]]</center> | [[Image:Consumption_us.gif|thumb|Description]]</center> | ||
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==Effects of Oil price rise on Chinese economy== | |||
: This new found thirst for oil could potentially be devastating for Chinas economic growth. Some speculate that a price hike could slow economic growth by .8%. This means that china would have to pay more for importing the same amount of oil. When oil prices rose from thirty-two to forty-six point nine dollars a barrel china had to pay 8.8 billion dollars more to import its 120 tons or 880 million barrels of oil. If prices rise much high banks will have to raise interest rates to curb inflation which is already a problem in Southeast Asian countries. This would cause an economic slow down which would force china to import less. With oil production slowly coming to a halt in some major oil fields in china the government must do something to put off the imminent problem. Some believe that the only way to do this would be to create special oil reserves. | |||
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<center>[[China issues with US Oil]] [[United States]] [[Global Economy]]</center> | <center>[[China issues with US Oil]] [[United States]] [[Global Economy]]</center> | ||
Latest revision as of 20:01, 28 April 2006
Economic growth
- Since 1978 China has had an annual eight percent growth rate within their economy. This impressive growth rate spawned from the government’s decision to abandon their strict central planning and convert to a market based economy. By doing so they opened their economy to foreign trade and investment. This has been a key factor in their economic growth (40% of GDP is investment driven.) Along with the conversion to a market based economy, a huge step was the countries admittance to the World Trade Organization in 2001.
- China’s amazing economic growth is historically impressive. No other country has been able to have an annual growth rate of 8% over a period of twenty years. In comparison, the United States has a 3% annual growth rate over a hundred years, and Japan’s growth was limited to 3.85% annually from 1971-1991. The Chinese government realizes the problem’s they face with rapid economic growth and aims to reduce their growth rate down to a 7% annually. This has proven to be a difficult task because as recently as the year 2004, the economy was growing at a 9.7% rate. Such a rapidly growing economy brings unstable factors to the Chinese economy that, if exacerbated, could send China into a possible depression. Some of these factors are unemployment, currency appreciation and banking reform.
So why has China seen such impressive economic growth?
- The high rates of foreign and domestic investment have spurred a lot of the economic growth. Along with investment, there has been an increase in productivity and fewer restrictions on international trade. One of the fundamental problems was the country was divided into provinces, each of which had its own “economy.” This restricted the nation’s overall investment and made for a lack of specialization. Under the old central planning system profits were lost due to corruption and bureaucracy. Today, factory managers and farmers can keep their profits. This motivates them to work harder and eventually produce more.
Efficiency and total factor productivity
- The change in economy allowed production of goods to increase due to the development of technology. In 1978, 70% of the labor was employed in agriculture, forestry, fisheries and mining; all of which accounted for 28% of the GDP. As recently as 2003, the labor employed in these fields had fallen to 49%. The change of labor markets can be connected to the increased focus on education, which has led to 51% increase in employment.
Foreign Trade
- In the 1980’s China realized that foreign trade was key to their economic growth. They slashed tariffs, there are no importing/ exporting licenses needed for most products and there are no more government trading monopolies. There trade surplus is something that should be taken into account. In 2003 the U.S. accounted for one fifth of the value of Chinas exports equaling 92.5 billion dollars. Their imports were only equal to 33.8 billion dollars creating a surplus of 58.6 billion dollars. This is a 30 billion dollar increase from between 2001-03.
Challenges
- If China’s economic growth continues at this rate, there are a few factors that could impede their continued growth. Their economy is still far from reaching a mature status. In 2003 their per-capita income was 3% to that of the U.S. The key for China is to maintain open stance on foreign investment and invest in an oil infrastructure and capitol. However growth can not be expected to continue at a 9% annual growth rate. This is because of the exhaustion and price surge in raw materials such as petroleum, metal ores and coal.
Potential problems
- Exchange rate
- Troubled banking system
- State owned enterprises
- Growing regional disparities
- Fiscal deficits
- Unemployment problem
- Inflation/deflation
What to expect in the future
- The Chinese economy is expected to grow at an 8% rate from 2006 to 2010. This means China will achieve its goal of quadrupling its GDP from 2000 to 2020. China’s Zheng Jingping, the vice premier, thinks an 8 to 9% annual growth rate will last for the next five to ten years. However, Han Wenxiu, senior official for National Development and Reform Commission, says it will last even longer possibly twenty years. Whether China’s economic growth continues at this astonishing rate, one thing is certain: it is time to consider them a world superpower.
Population
- China has the largest population in the world. The first modern censes in 1953 totaled the population at 583,000,000 which means that the population has more than doubled in fifty years; in 1999 the population was estimated to be 1,252,800,000. This is an increase of 670,000,000 which exceeds the population of Europe (579,700,000). From 1953 to 1964 there was an increase of 112,000,000. In reaction to these numbers the government implemented the One Child Policy in the 1970’s. It was strictly enforced in the 80’s and lead to forced abortions, infanticide and penalties.
- Today there is an increase of twelve to thirteen million people born in china every year. These numbers are staggering considering that they exceed countries like Belgium, Greece and Cambodia, and in 1995 China accounted for one fifth of the world’s population. With around one million people being born every month and with an annual total of over twelve million a year China’s yearly growth equals that of New York.
Oil Consumption & Projections
- In 2004 China was the second largest oil consumer behind the U.S. at 6.5 million barrels of petroleum products a day. They surpassed Japan in 2003 and are expected to consume 14.2 million barrels a day by 2025, while importing 10.9 million barrels. Further more over the past four years China has accounted for 40% of the demand of the world’s oil; with a year by year growth of one million barrels a day.
- In 1998 the Chinese government recognized that they needed to convert most state owned oil and gas assets into two vertically integrated firms. They created the China National Petroleum Corporation (CNPC) and China Petrochemical Corporation (Sinopec). CNPC deals mostly with oil and gas exploration while Sinopec deals with refining and distributing oil and gas.
- 85% of Chinas oil production is done onshore. With Daqing, a field in northeastern China, producing 900,000 of the 3.6 million barrels a day used in China. In 2004 Chinese authorities announced some new finds in the existing Shengli fields. However, the government’s priorities are not in extending the life of their existing oil fields but rather developing a system in which to deliver western oil to the east. This is proving to be very difficult because of the distance.
- Due to China's growing interest in oil it has been exploring production abroad. The most significant case of this would be CNPC 60% stake in the Kazakh oil firm Aktobemunaigaz which includes a 700 million dollar pipeline to transport Kazakh crude oil to western China. This would supply China with 200,000 barrels a day and was projected to be complete in December of 2005.
- One of the factors contributing to China's increased interest in oil is in 2003 automobile sales in China grew by 70% causing oil imports to rise by 30%. This is due to Chinas admittance into the WTO, causing cars to become cheaper thus starting a transition away form bikes and mass transit. It is projected that by 2010 China will have 90 times more cars than they had in 1990. If china continues at this rate by the year 2030 it are estimates that they will have more cars than the U.S and import just as much oil. Some people are viewing this as a positive because it gives china an increased interest in the Middle East. People believe that this new interest will force China to help stabilize that area. The problem is that generally super powers find it hard to coexist while competing for depleting resources.
- By the year 2020 China's need for energy is expected to increase by 150%. Presently their oil consumption is growing at a rate of 7.5% this is seven times faster than the United States. This is a major problem for China because the expected life of their oil fields is only twenty years. By 2020 it is expected that China is going to have to double its importation of oil from 32%.
Effects of Oil price rise on Chinese economy
- This new found thirst for oil could potentially be devastating for Chinas economic growth. Some speculate that a price hike could slow economic growth by .8%. This means that china would have to pay more for importing the same amount of oil. When oil prices rose from thirty-two to forty-six point nine dollars a barrel china had to pay 8.8 billion dollars more to import its 120 tons or 880 million barrels of oil. If prices rise much high banks will have to raise interest rates to curb inflation which is already a problem in Southeast Asian countries. This would cause an economic slow down which would force china to import less. With oil production slowly coming to a halt in some major oil fields in china the government must do something to put off the imminent problem. Some believe that the only way to do this would be to create special oil reserves.
Resources
China: A Study of Dynamic Growth
