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Essay Samples > Economics > The State of Chinas Economy
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The State of Chinas Economy

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China is one of the world's fastest growing economies and a major economic and trade power. Millions of the Chinese people are out of poverty with the improving economic growth. Trade and foreign investment has also contributed to the booming economy. In 2008, china was the world's second largest merchandise exporter and third largest importer. In china, foreign investment firms conduct over half of china's trade. In 2008, foreign direct investment in China summed $92 billion, making it the destination for foreign investors among developing countries. China's large foreign exchange reserve is at $ 2.3 trillion. This is because of a combination of the large-scale purchases made, large trade surpluses, and foreign direct investment.

With the onset of the global economic crisis, china's economy dropped and the GDP began slowing down. Within a span of one year, china's trade and inflow of foreign investments diminished sharply. Millions of workers lost their jobs. The Chinese government now had to seek for ways to boost the economy. They implemented several measures. One was establishing easy money policies to boost banking lending, and providing assistance to various industries. These policies helped stabilize china's economy and the real GDP grew by over eight percent (Chow 52).

Despite the positive outlook of the Chinese economy, China faces a number of challenges which if not addressed, they could undermine the future economic growth and stability of the country. These include government corruption, an inefficient banking system, lack of rule of law, severe pollution, widening income disparities, overdependence on exports, and fixed investment for growth. These challenges make the Chinese government in continuous need to promote a more balanced economic growth and address a number of economic and social skills (Grainsbrugh and Backman 103).

The United States policy makers lay much concern on China's economy and economic policies. These rapid economic and growth rate is of great benefit to the United States consumers, exporters, and investors. China's large holdings of the United States securities keep the U.S interest rates relatively low. China's growing energy needs is because of Chinese efforts to purchase energy and raw materials assets around the world and growing levels of pollution and greenhouse gases (Economic Policy institute).

Let us now look at how the business cycle effects employment and real GDP. To determine whether the economy of a nation is growing or shrinking in size, economists use a measure of total output called real GDP. Real GDP is the short form for real gross domestic product. This is the total value of all final goods and services produced during a particular year or period, and adjusting it eliminates the effects of changes in prices.

The economy follows a path of expansion then contraction and expands again. These fluctuations make up the business cycle. The point at which an expansion becomes a recession is the peak of the business cycle. The point at which a recession becomes an expansion is a trough. Overtime, the general trend for most economies is one of rising GDP. On average, the growth of GDP in the United States is roughly over three percent per year (Bénassy-Quéré and Lahrèche-Révil 78).

 The growth of real GDP per capita measures the standard of living. Productivity is the relationship between the output of goods and services and the input of resources, both human and non-human used in the production process. Changes in commodity prices do not affect the output and input. Their unit of measurement is physical volumes.

In broader terms, productivity affects the standards of living. The productivity and change in hours worked per capita affect the standards of living. Look at a sample equation to represent productivity.

The first term of the equation represents labor productivity, the second, labor utilization which demographic and labor productivity influence it. The center of living standards is based on the economic well-being.

Productivity increases consumption as real income is a primary determinant of consumption. Productivity gives individuals a choice of taking more leisure time while maintaining their real wages. Non-working time is part of effective consumption. Individuals value this time so much.

Increased life expectancy is also part of effective production. It makes individual take great care on their consumption rate in relation to the period of consumption. Productivity can also increase life expectancy. Taking an example, productivity provides higher incomes through which more we can make investments in heath. In relation to poverty, productivity will depend on how aggregate the sharing of productivity gains is among different income groups. This is to say, productivity will decrease poverty as it lifts real incomes. The effect of productivity on single parents and the elderly is the same as that of the overall population (Economic Policy institute).

Virtuous circles are also evident for some components of the index of economic well-being and productivity. Investments in stock for example, play a large role in increasing productivity. This in turn causes further investment, leading to higher productivity.

In summary, productivity does not simply enhance our material standards of living; it also expands the range of choices available. Increased productivity gives the society a choice through market and the political arena. The question that lingers the mind at this point is, will our great economic well-being manifest itself through greater consumption goods, more public good and additional leisure? Alternatively, will it manifest itself through the great public transfers and in turn increase quality and economic security?

With great productivity in the country, monitoring the rate of expenditure is essential. With monitoring put in place, implementation of a government budget takes root. In China, reduces energy consumption and pollutant discharge led to a significant growth in the economy. China changed its focus on development from urban development and putting heavy investments in multi-billion dollar projects to boosting rural and science technological investments for sustainable development. By putting more stress on economic efficiency, the government was also narrowing down the gap between the rich and the poor and thus easing social stability. The five years development plan marked a new phase in the growth of China. This involved shifting focus from the speed of growth driven by manufacturing companies and urban infrastructure to putting a strain on the sustainability of rural development and various social programs.

Development of agriculture and improvement of rural areas is a great plus to the economy of China. Solving problems related to agriculture and rural areas makes china develop in the right direction. Despite the slow growth in development of the rural areas, the new countryside socialist drive is a benefit to the rural residents in China (Tucker 93).

When analyzing the economic growth of China, Personal consumption by members of the population is also a key factor to look at. Personal consumption measures rises and declines demand of commodities based on the price changes. This in turn may enhance or dampen the effects of inflation. Personal consumption is undergoing structural changes concerning the range of purchased goods. Structural changes in personal consumption are due to the rapid growth of the Chinese economy and the accompanying increases in personal income. The fast and sustained economic growth of china is the cause of the increase in China's per capita GDP. The change of personal consumption undergoing in the Chinese market is important. Considering the market size, the world economy will eventually perceive its influence as well. This is in no doubt that the potential of personal consumption in China is substantial (Tucker 60).

Conclusion

Despite China's economic growth, the monetary policy changes affect the country's imports and exports. China's trade balance is sensitive to the fluctuation in the real effective exchange rate. Millions of the Chinese people are out of poverty with the improving economic growth. To make it worse, the effect of productivity on single parents and the elderly is the same as that of the overall population. Trade and foreign investment has also contributed to the booming economy. Therefore, the rise in the exchange rate market value causes reduction in exports and imports in the end. The overall impact of fluctuations on the exchange rates on trade is minimal. Solving problems related to agriculture and rural areas makes china develop in the right direction. Despite the slow growth in development of the rural areas, the new countryside socialist drive is a benefit to the rural residents in China.

China's growing energy needs is because of Chinese efforts to purchase energy and raw materials assets around the world and growing levels of pollution and greenhouse gases. Practicing the correction of the trade surplus shows that exchange rate policy, alone cannot solve the growing imbalance of the china's economy namely its growing trade. In addition, various policies helped stabilize china's economy and the real GDP grew by over eight percent. Despite the slow growth in development of the rural areas, the new countryside socialist drive is a benefit to the rural residents in China. Companies were not left out when they started shifting focus from the speed of growth driven by manufacturing companies and urban infrastructure to putting a strain on the sustainability of rural development and various social programs.

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