This website uses cookies to ensure you have the best experience. Learn more

China Economics Essay

3753 words - 16 pages


* China's economy "weathered" the global downturn better than most economies. In fact, the country’s Gross Domestic Product expanded by an average 8.45% in 2009, the fastest in the world. Yet, the astonishing recovery was supported by a vast fiscal stimulus and loose monetary policy. And looking ahead, China’s economy may overheat and bring inflation to elevated levels thus hampering future growth.

Indeed, China’s growth in 2009 was largely a result of 4 trillion yuan stimulus package directed mostly to infrastructure projects and lending. For example, in December only, China's wide M2 measure of money supply and fixed asset investments grew almost 30% year on year. On the ...view middle of the document...

What it did was it took China from having the highest investment rate—probably in recorded history—and significantly increased it. It increased the importance of investment in China and it increased the probability that a lot of this investment wasn’t economically viable. What didn’t go into infrastructure investment went into expanding capacity in a world that doesn’t really need more capacity, it needs less capacity. So it went into expanding shipbuilding, steel production, chemicals, etc.
So from that point of view it hasn’t been very successful. Especially if you consider that there may be a significant increase in non-performing loans and in non-economically viable investment which must be paid for in the future by the household sector, probably in the form of very low interest rates, which means that it will act as a constraint on future household income growth and therefore a constraint on future consumption growth.
In a way, part of the expansion is going to push up production and part of it is going to constrain the growth of consumption. And China already produces more than they consume. So pushing them in the opposite directions is not going to help.
But, if you think the purpose of the fiscal and credit expansion was to address a short-term problem of a surge in unemployment in China, then it has been extremely successful. With the collapse in net exports, we should have seen the economy grind to halt and unemployment soar. The purpose of the fiscal stimulus program was to address specifically that problem.
Unfortunately, you have a conflict between the short-term policy objectives and the long-term policy objectives. The government, perhaps properly, addressed the short-term policy objectives. But that doesn’t mean that it resolved the long-term rebalancing problem—it probably made it worse, and China is going to have to rebalance one way or the other.

How can China rebalance its economy?
In the case of China, rebalancing has a very special meaning. It means that consumption must grow as a share of GDP. To give you an idea, five or six years ago private consumption was around 40 percent of GDP—that is an extraordinarily low number.
Among Asian countries that have traditionally had high savings and low consumption rates, Malaysia had private consumption in the low fifties, and at one point after the crisis it declined to around 45 percent of GDP before climbing back to up around 51, 52 percent. That 45 percent was an anomaly.
China, five or six years ago, was at 40 percent. You need to bear in mind that the larger the country, the less likely it is to be an outlier. 45 percent for China would have been worse than 45 percent for Malaysia. 40 percent for China was much, much lower.
The government at the time decided that it was very important to raise consumption as a share of GDP. But, because I believe they had the wrong model for thinking about it, what happened over the next five years was that consumption as share of...

Other Essays Like China Economics

Us Trade with China Policies Essay

2118 words - 9 pages regulated to maintain US independence. Inherency: China controls the value of the US dollar. Claim A: China keeps its yuan undervalued to reduce the value of the US dollar. Warrant 1A: Keeping the yuan undervalued gives China an unfair advantage over the US. Grounds: 1A: In a 2009 Washington times article Nobel laureate Paul Krugman and C. Fred Bergsten, director of the Peterson Institute for International Economics, charged that “The

Historical Interest Rates and Future Trends in Australia and China Money Market

2430 words - 10 pages interest rate in China shows an evidently downward curve, during the past 15 years, spanning from 1996 to 2010. Nevertheless, there is an exception in the year of 2006 to 2008 approximately, illustrating an ascending trend. (Figure 3) (Source: Trading Economics) At the beginning of the 5 years, the interest rate declines sharply, which is significantly influenced by money policy conducted during that period. Chinese government manages to


995 words - 4 pages human rights. On money matters, Mr. Obama's foolish decision to slap tariffs on Chinese tires has given dangerous encouragement to protection in America. As unemployment there climbs inexorably towards 10%, the pressure will grow for congress to fuel a self-defeating attack on Chinese exports and undervalued Yuan. This is bad economics; both china and America would lose enormously from a trade war. If economic freedom is one American value that

Uk’s China Policies Since 2010

5318 words - 22 pages national interest. The Conservative had already won majority in the 2015 election, and the new government gets rid of the other party’s interference in decision making. China now is still at a high speed of development, therefore the Conservative, which promotes free trade, is less likely to take a negative attitude with China. UK will continue to carry on its previous policies to China from a pragmatic perspective, focusing on economics dimension

Global Cultural Analysis

5210 words - 21 pages examples of obstacles to doing business in China are centralization of laws which tend to be different depending on which region, the sprawl of urbanization has impeded on an infrastructure that China has outgrown, and banking issues such as the lack of a merchant credit card structure with only 2% of companies set up to accept credit cards. This of course to the Chinese government a work in progress. While China because of pure economics

Frenemies: the Possibility of Military Conflict Between China and the United States

2358 words - 10 pages . Therefore, explicit conflicts like wars are not inevitable at least in recent decades. To pursue the vital national interest, China will keep its focus on solving contradictions among the people and building a harmonious society in order to achieve sustained economic development. To maintain its world supremacy, the US has to keep recovering from the financial crisis and solving difficulties in its domestic economy, because economics is the

Hk Export

4325 words - 18 pages DSME 5011 - Economics Clara Tak-Wai LAW EXECUTIVE SUMMARY 1 2 INTROUDCTION BACKGROUND OF EXPORT TRADING 2.1 China 2.2 Hong Kong 3 TYPES OF EXPORT GOODS AND SERVICES 3.1 China 3.2 Hong Kong 4 ECONOMIC DEVELOPMENT 4.1 China 4.1.1 4.1.2 4.1.3 4.1.4 4.2.1 4.2.2 4.2.3 5 5.1 Participation of Global Trade Association Foreign Direct Investment Currency Valuation Structural Changes Free Trade Policy Close Economic Partnership Arrangement with

How Is China’s Exchange Rate Policy Linked to Its Development Strategy?

765 words - 4 pages priority for China is stability as it is a country in transition and a floating exchange rate regime would destabilize China. For Robert Mundell (Columbia university economics professor) it would cut economic growth, foreign investments and would destabilize Asia. Nevertheless, even if a change of the exchange rate regime would impact growth in China, as former IMF Chief Economist Rogloff thinks, it may be better for China to change its exchange rate


520 words - 3 pages MACROECONOMICS PRIYANKA DEY FT171068 What is actually Macroeconomics? The branch of economics concerned with large-scale or general economic factors, such as interest rates and national productivity. So the word can be

Smoothie King

923 words - 4 pages China is the largest exporter($2.21 trillion in 2013) and second large importer($1.95 trillion in 2013) of goods in the world. The socialist market of China is the world's second large economy by nominal GDP and by purchasing power parity after the United States. China main export partners are Hong Kong(17.4%), United States (16.7%), Japan (6.8%) and South Korea($.1%). However, South Korea(9.4%), Japan(8.3%), Taiwan(8.0%), United States (7.85

New Zealand Animal Husbandry Industry

2353 words - 10 pages Inflation rates 7 3.0 Conclusion 7 4.0 Recommendation 8 5.0 Reference List: 9 6.0 Appendices 10 1.0 Introduction: This report is concentrate on talking about the dangers and opportunities of New Zealand animal husbandry industry that try to start international operations in China. China is one of the world's oldest continuous civilizations, and has most complex cultures. China leads the world in swine production, the total number of hogs

Related Papers

The Sars Epidemic In 2003 Relevant Economics Variables In China

1535 words - 7 pages The SARS Epidemic in 2003 Relevant Economics Variables in China SARS (Severe Acute Respiratory Syndrome) was a new infectious disease which was first recognized in late February 2003 and has put the world on alert. This is a respiratory disease in humans which is caused by the SARS corona virus. The virus appears to be highly contagious and fatal. World Health Organization reported that the SARS between November 2002 and July 2003 cause

Ethos Case Study

680 words - 3 pages also discuss how positive and normative economics reflects decisions made by the three countries, and the way market efficiency, economizing, and the market system affect these ethical issues. Over a 10-year time span China and Jamaica both are trying to determine how they compare to the United States, which is already a developed country. China has shown an emergence in their economy and their collaboration with the World Trade Agreement. As

Sdeafdfaf Essay

660 words - 3 pages Economics 1991, 34, pp.199-222. Young, Alyn. “Increasing Returns and Economic Progress.” The Economic Journal, 1928, 152, pp:527-542. Yu Yongding, “Opinions upon RMB Internationalization”, China and Global Economy Forum: Financial Crisis and Reforms of International Financial System, Shanghai, China, May 13th, 2009. Zhang Min, “RMB Internationalization Wil be a process of long term and incrementality”, Chinese Academy of Social Science, RCIF, Policy Brief No. 09037, 2009. Zhang Yuyan, Zhang Jingchun, “Property of Curency and the Choice of RMB in Future: a Study Combined with Asia Monetary Cooperation.” Journal of Contemporary

Aging Problem In China Essay

602 words - 3 pages phenomenon trends to continue. Some cities of China begin to implement to one child policy more flexibly. Qinwei Wang, analyst of Capital Economics, claimed that the influence of one child policy change would be small. Because many people who live in the city are not eager to have more child. On the other hand, “even the birth rates were to increase, it would take 15 or more years for new generation to enter the labor force.” (Charles Riley