China
From Dickinson College Wiki
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 chine 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.
