China officially the People’s Republic of China (PRC), is the largest country in East Asia. It is the world’s most populous country, with a population of over 1. 3 billion. Covering approximately 9. 6 million square kilometers, the country is the world’s second-largest country by land area, and the third- or fourth-largest by total area, depending on the definition of total area.
The People’s Republic of China (PRC) is the world’s second largest economy binominal GDP and by purchasing power parity after the United States. It is the world’s fastest-growing major economy, with growth rates averaging 10% over the past 30 years. China is also the largest exporter and second largest importer of goods in the world. History Of Economy Development: 1949-1978: Mao tried to push China’s economy to new heights. Under his highly touted “Great Leap Forward”, agricultural collectives were reorganized into enormous communes where men and women were assigned in military fashion to specific tasks.
Peasants were told to stop relying on the family, and instead adopted a system of communal kitchens, mess halls, and nurseries. Wages were calculated along the communist principle of “From each according to his ability, to each according to his need”, and sideline production was banned as incipient capitalism. All Chinese citizens were urged to boost the country’s steel production by establishing “backyard steel furnaces” to help overtake the West. The Great Leap Forward quickly revealed itself as a giant step backwards.
Over-ambitious targets were set, falsified production figures were duly reported, and Chinese officials lived in an unreal world of miraculous production increases. By 1960, agricultural production in the countryside had slowed dangerously and large areas of China were gripped by a devastating famine. For the next several years, China experienced a period of relative stability. Agricultural and industrial production returned to normal levels, and labor productivity began to rise. Then, in 1966, Mao proclaimed a Cultural Revolution to “put China back on track”.
Under orders to “Destroy the Four Olds” (old thoughts, culture, customs and habits), universities and schools closed their doors, and students, who became Mao’s “Red Guards”, were sent throughout the country to make revolution, beating and torturing anyone whose rank or political thinking offended. By 1978 the country had descended into anarchy, and factions of the Red Guards had begun to fight among themselves.
Since 1978, China began to make major reforms to its economy. The Chinese leadership adopted a pragmatic perspective on many political and socioeconomic problems, and quickly began to introduce aspects of a capitalist economic system. Political and social stability, economic productivity, and public and consumer welfare were considered paramount and indivisible. In these years, the government emphasized raising personal income and consumption and introducing new management systems to help increase productivity. The government also had focused on foreign trade as a major vehicle for economic growth.
In the 1980s, China tried to combine central planning with market-oriented reforms to increase productivity, living standards, and technological quality without exacerbating inflation, unemployment, and budget deficits. Reforms began in the agricultural, industrial, fiscal, financial, banking, price setting, and labor systems. A decision was made in 1978 to permit foreign direct investment in several small “special economic zones” along the coast. The country lacked the legal infrastructure and knowledge of international practices to make this prospect attractive for many foreign businesses, however.
In the early 1980s steps were taken to expand the number of areas that could accept foreign investment with a minimum of red tape, and related efforts were made to develop the legal and other infrastructures necessary to make this work well. This additional effort resulted in making 14 coastal cities and three coastal regions “open areas” for foreign investment. All of these places provide favored tax treatment and other advantages for foreign investment. Laws on contracts, patents, and other matters of concern to foreign businesses were also passed in an effort to attract international capital to spur China’s development.
The largely bureaucratic nature of China’s economy, however, posed a number of inherent problems for foreign firms that wanted to operate in the Chinese environment, and China gradually had to add more incentives to attract foreign capital. Phase One: reform in the countryside When Deng came into power, China’s vast peasantry was organized in communes, work brigades, and production teams. Procurement prices were too low to cover even production costs, and ceilings were set on the amount of grain that producers could keep for consumption.
Deng allowed farmers to produce on their own and sanctioned the sale of surplus production and other cash crops in newly freed markets. State procurement prices were raised, and prices for many agricultural goods were left to the dictates of the market. Beginning with the poor mountain areas of Anhui and then spreading across the country, Deng and his officials broke up the communes established by Mao and replaced them with a complicated system of leases that eventually brought effective land tenure back to the household level (even though ownership of land remained collective).
The Household Responsibility System allowed peasants to lease land for a fixed period from the collective, provided they delivered to the collective a minimum quota of produce, usually basic grain. They could then sell any surplus they produced, either to the state at government procurement prices or on the newly free market. They were also permitted to retain any profits they might earn. Within a decade, grain production had grown by roughly 30%, and production of cotton, sugarcane, tobacco, and fruit had doubled.
As the reforms fueled production increases that surprised even the reformers, the scale of change grew bolder, and by the mid-1980s, the party leadership had begun the more complicated and politically delicate task of transforming the country’s system of central planning and state-owned enterprise. Prior to 1978, enterprises were almost all owned by the state in one form or another. At the top of each sector were the State-owned Enterprises (SOEs), answerable to the national government. Below these were other enterprises reporting to provincial, municipal, or county authorities.
Private enterprises, meaning family-run shops, were not allowed until after 1978, and even then they were limited to seven employees. China’s SOEs were typical of large industrial firms in a centrally planned economy. They functioned not only as industrial units but also as social agencies, providing housing, daycare, education, and health care for the workers and their families. The largest enterprises included hundreds of thousands of employees, only a small proportion of whom were directly engaged in production.
In the 1990s, the Chinese economy continued to grow at a rapid pace, at about 9. 5%, accompanied by a rapidly increasing inflation, which reached over 20 percent in 1994. The Asian financial crisis affected China at the margin, mainly through decreased foreign direct investment and a sharp drop in the growth of its exports. However, China had huge reserves, a currency that was not freely convertible, and capital inflows that consisted overwhelmingly of long-term investment.
For these reasons it remained largely insulated from the regional crisis and its commitment not to devalue had been a major stabilizing factor for the region. However, China faced slowing growth and rising unemployment based on internal problems, including a financial system burdened by huge amounts of bad loans, and massive layoffs stemming from aggressive efforts to reform state-owned enterprises (SOEs). Despite China’s impressive economic development during the past two decades, reforming the state sector and modernizing the banking system remained major hurdles.
Over half of China’s state-owned enterprises were inefficient and reporting losses. During the15th National Communist Party Congress that met in September 1997, President Jiang Zemin announced plans to sell, merge, or close the vast majority of SOEs in his call for increased “non-public ownership” The 9th National People’s Congress endorsed the plans at its March 1998 session. In 2000, China claimed success in its three year effort to make the majority of large state owned enterprises (SOEs) profitable. 2000–2010:
Third Plenum, held in October 2003, Chinese legislators unveiled several proposed amendments to the state constitution. One of the most significant was a proposal to provide protection for private property rights. Legislators also indicated there would be a new emphasis on certain aspects of overall government economic policy, including efforts to reduce unemployment (now in the 8–10% range in urban areas), to rebalance income distribution between urban and rural regions, and to maintain economic growth while protecting the environment and improving social equity.
The National People’s Congress approved the amendments when it met in March 2004. The Fifth Plenum in October 2005 approved the 11th Five-Year Economic Program (2006–2010) aimed at building a “harmonious society” through more balanced wealth distribution and improved education, medical care, and social security. On March 2006, the National People’s Congress approved the 11th Five-Year Program. The plan called for a relatively conservative 45% increase in GDP and a 20% reduction in energy intensity (energy consumption per unit of GDP) by 2010.
China’s economy grew at an average rate of 10% per year during the period 1990–2004, the highest growth rate in the world. China’s GDP grew 10. 0% in 2003, 10. 1%, in 2004, and even faster 10. 4% in 2005 despite attempts by the government to cool the economy. China’s total trade in 2010 surpassed $2. 97 trillion, making China the world’s second-largest trading nation after the U. S. Such high growth is necessary if China is to generate the 15 million jobs needed annually—roughly the size of Ecuador or Cambodia—to employ new entrants into the national job market.
On January 14, 2009, as confirmed by the World Bank the NBS published the revised figures for 2007 fiscal year in which growth happened at 13 percent instead of 11. 9 percent (provisional figures). China’s gross domestic product stood at US$3. 38 trillion while Germany’s GDP was USD $3. 32 trillion for 2007. This made China the world’s third largest economy by gross domestic product. Based on these figures, in 2007 China recorded its fastest growth since 1994 when the GDP grew by 13. percent.
China launched its Economic Stimulus Plan to specifically deal with the Global financial crisis of 2008–2009. It has primarily focused on increasing affordable housing, easing credit restrictions for mortgage and SMEs, lower taxes such as those on real estate sales and commodities, pumping more public investment into infrastructure development, such as the rail network, roads and ports. By the end of 2009 it appeared that the Chinese economy was showing signs of recovery.
At the 2009 Economic Work Conference in December ‘managing inflation expectations’ was added to the list of economic objectives, suggesting a strong economic upturn and a desire to take steps to manage it. [pic] 2010–2012: By 2010 it was evident to outside observers such as The New York Times that China was poised to move from export dependency to development of an internal market. Wages were rapidly rising in all areas of the country and Chinese leaders were calling for an increased standard of living.
In 2010, China’s GDP was valued at $5. 87 trillion, surpassed Japan’s $5. 47 trillion, and became the world’s second largest economy after the U. S. China could become the world’s largest economy (by nominal GDP) sometime as early as 2020. China is the largest creditor nation in the world and owns approximately 20. 8% of all foreign-owned US Treasury securities.
The Institute of Economic Research of Renmin University of China has conducted several studies and released several reports regarding China’s economy. Under the influences of 2009’s stimulus policies, the spread of the economic bubble and implementation of the “12th Five-Year Plan”, China was at a key stage of steering the economic recovery to stable growth. While prices increased steadily, China’s GDP went back to the high-level growth rate and its economic structure gradually became market-oriented. “. The foremost authorities on the Chinese economy — those within the Chinese think-tanks and government — give a unique, first-hand perspective.
Their works, translated into English for a Western audience, are published only through an independent Hong Kong publishing house,Enrich Professional Publishing (EPP), and can be found at academic libraries throughout the world. The World Bank’s chief economist Justin Lin in 2011 stated that China, which became the world’s second largest economy in 2010, may become the world’s largest economy in 2030, overtaking the United States, if current trends continue. Challenges include income inequality and pollution.
The Standard Chartered Bank in a 2011 report suggested that China may become the world’s largest economy in 2020. 53] A 2007 OECD rapport by Angus Maddison estimated that if using purchasing power parity conversions, then China will overtake the United States in 2015. James Wolfensohn, former World Bank president, estimated in 2010 that by 2030 two-thirds of the world’s middle class will live in China. ] The Director of the China Center for Economic Reform at Peking University Yao Yang in 2011 stated that “Assuming that the Chinese and U. S. economies grow, respectively, by 8% and 3% in real terms, that China’s inflation rate is 3. % and America’s is 2% (the averages of the last decade), and that the renminbi appreciates against the dollar by 3% per year (the average of the last six years), China would become the world’s largest economy by 2021. By that time, both countries’ GDP will be about $24 trillion. “
In 2011, the IMF warned that government controlled banks could be building up imbalances that could hamper growth and leave the system “severely impacted”. In 2011, the IMF predicted that China’s GDP (purchasing power parity adjusted) would overtake that of the United States in 2016.
The state favours state-owned enterprises despite lower productivity; this crowds out competition, in a phenomenon known as Guo jin min tui. From 2011 onward, however, the Chinese economy has been shows signs of fraying. China has been experiencing an economic downturn that throws all of the above calculations into doubt. Ray Dalio, founder of the world largest hedge fund, told the Council of Foreign Relations that he foresaw Chinese GDP falling to 4-5% due to failure to switch successfully from the export-driven model to more consumption.
In 2012, Amnesty International reported that forced evictions that resulted from a construction boom caused by excessive stimulus spending were a serious threat to China’s social and political stability. Macro Economic Trends: In January 1985, the State Council of China approved to establish a SNA (System of National Accounting), use the gross domestic product (GDP) to measure the national economy. China started the study of theoretical foundation, guiding, and accounting model etc. , for establishing a new system of national economic accounting.
In 1986, as the first citizen of the People’s Republic of China to receive a Ph. D. in economics from an overseas country, Dr. Fengbo Zhang headed Chinese Macroeconomic Research – the key research project of the seventh Five-Year Plan of China, as well as completing and publishing the China GDP data by China’s own research. The summary of the above has been included in the book Chinese Macroeconomic Structure and Policy (1988) Editor: Fengbo Zhang, collectively authored by the Research Center of the State Council of China. This is the first GDP data which was published by China.
The State Council of China issued “The notice regarding implementation of System of National Accounting” in August 1992, the SNA system officially is introduced to China, replaced Soviet Union’s MPS system, Western economic indicator GDP became China’s most important economic indicator. [pic] Agriculture: China is the world’s largest producer and consumer of agricultural products – and some 300 million Chinese farm workers are in the industry, mostly laboring on pieces of land about the size of U. S farms. Virtually all arable land is used for food crops.
China is the world’s largest producer of rice and is among the principal sources of wheat, corn, tobacco, soyabeans, potatoes, sorghum, peanuts, tea, millet, barley, oilseed, pork, and fish. Major non-food crops, including cotton, other fibers, and oilseeds, furnish China with a small proportion of its foreign trade revenue. Agricultural exports, such as vegetables and fruits, fish and shellfish, grain and meat products, are exported to Hong Kong. Yields are high because of intensive cultivation, for example, China’s cropland area is only 75% of the U. S. otal, but China still produces about 30% more crops and livestock than the United States.
China hopes to further increase agricultural production through improved plant stocks, fertilizers, and technology. Foreign Investments: China’s investment climate has changed dramatically with more than two decades of reform. In the early 1980s, China restricted foreign investments to export-oriented operations and required foreign investors to form joint-venture partnerships with Chinese firms. The Encouraged Industry Catalogue sets out the degree of foreign involvement allowed in various industry sectors.
From the beginning of the reforms legalizing foreign investment, capital inflows expanded every year until 1999. Foreign-invested enterprises account for 58–60% of China’s imports and exports. Since the early 1990s, the government has allowed foreign investors to manufacture and sell a wide range of goods on the domestic market, eliminated time restrictions on the establishment of joint ventures, provided some assurances against nationalization, allowed foreign partners to become chairs of joint venture boards, and authorized the establishment of wholly foreign-owned enterprises, now the preferred form of FDI.
In 1991, China granted more preferential tax treatment for Wholly Foreign Owned Enterprises and contractual ventures and for foreign companies, which invested in selected economic zones or in projects encouraged by the state, such as energy, communications and transportation. China also authorized some foreign banks to open branches in Shanghai and allowed foreign investors to purchase special “B” shares of stock in selected companies listed on the Shanghai and Shenzhen Securities Exchanges.
These “B” shares sold to foreigners carried no ownership rights in a company. In 1997, China approved 21,046 foreign investment projects and received over $45 billion inforeign direct investment. China revised significantly its laws on Wholly Foreign-Owned Enterprises and China Foreign Equity Joint Ventures in 2000 and 2001, easing export performance and domestic content requirements. Foreign investment remains a strong element in China’s rapid expansion in world trade and has been an important factor in the growth of urban jobs.
In 1998, foreign-invested enterprises produced about 40% of China’s exports, and foreign exchange reserves totalled about $145 billion. Foreign-invested enterprises today produce about half of China’s exports (the majority of China’s foreign investment come from Hong Kong, Macau and Taiwan), and China continues to attract large investment inflows. However, the Chinese government’s emphasis on guiding FDI into manufacturing has led to market saturation in some industries, while leaving China’s services sectors underdeveloped.
From 1993 to 2001, China was the world’s second-largest recipient of foreign direct investment after the United States. China received $39 billion FDI in 1999 and $41 billion FDI in 2000. China is now one of the leading FDI recipients in the world, receiving almost $80 billion in 2005 according to World Bank statistics. In 2006, China received $69. 47 billion in foreign direct investment. Foreign exchange reserves totaled $155 billion in 1999 and $165 billion in 2000.
Foreign exchange reserves exceeded $800 billion in 2005, more than doubling from 2003. Foreign exchange reserves were $819 billion at the end of 2005, $1. 066 trillion at the end of 2006, $1. 9 trillion by June 2008. In addition, by the end of September 2008 China replaced Japan for the first time as the largest foreign holder of US treasury securities with a total of $585 billion, vs Japan $573 billion. China has now surpassed those of Japan, making China’s foreign exchange reserves the largest in the world. [pic] External Trade:
Since economic reforms began in the late 1970s, China sought to decentralize its foreign trade system to integrate itself into the international trading system. On November 1991, China joined the Asia-Pacific Economic Cooperation (APEC) group, which promotes free trade and cooperation the in economic, trade, investment, and technology spheres. China served as APEC chair in 2001, and Shanghai hosted the annual APEC leaders meeting in October of that year. After reaching a bilateral WTO agreement with the EU and other trading partners in summer 2000, China worked on a multilateral WTO accession ackage.
China concluded multilateral negotiations on its accession to the WTO in September 2001. The completion of its accession protocol and Working Party Report paved the way for its entry into the WTO on December 11, 2001, after 16 years of negotiations, the longest in the history of the General Agreement on Tariffs and Trade. However, U. S. exporters continue to have concerns about fair market access due to China’s restrictive trade policies and U. S. export restrictions. [pic] Systemic problems:
The government has in recent years struggled to contain the social strife and environmental damage related to the economy’s rapid transformation; collect public receipts due from provinces, businesses, and individuals; reduce corruption and other economic crimes; sustain adequate job growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the work force; and keep afloat the large state-owned enterprises, most of which had not participated in the vigorous expansion of the economy and many of which had been losing the ability to pay full wages and pensions.
From 50 to 100 million surplus rural workers were adrift between the villages and the cities, many subsisting through part-time low-paying jobs. Popular resistance, changes in central policy, and loss of authority by rural cadres have weakened China’s population control program. Another long-term threat to continued rapid economic growth has been the deterioration in the environment, notably air and water pollution, soil erosion, growing desertification and the steady fall of the water table especially in the north. China also has continued to lose arable land because of erosion and infrastructure development.
Inflation: During the winter of 2007–2008, inflation ran about 7% on an annual basis, rising to 8. 7% in statistics for February 2008, released in March 2008. Shortages of gasoline and diesel fuel developed in the fall of 2007 due to reluctance of refineries to produce fuel at low prices set by the state. These prices were slightly increased in November 2007 with fuel selling for $2. 65 a gallon, still slightly below world prices. Price controls were in effect on numerous basic products and services, but were ineffective with food, prices of which were rising at an annual rate of 18. % in November 2007.
The problem of inflation has caused concern at the highest levels of the Chinese government. On January 9, 2008, the government of China issued the following statement on its official website: “The Chinese government decided on Wednesday to take further measures to stabilize market prices and increase the severity of punishments for those guilty of driving up prices through hoarding or cheating. ” Pork is an important part of the Chinese economy with a per capita consumption of a fifth of a pound per day.
The worldwide rise in the price of animal feed associated with increased production of ethanol from corn resulted in steep rises in pork prices in China in 2007. Increased cost of production interacted badly with increased demand resulting from rapidly rising wages. The state responded by subsidizing pork prices for students and the urban poor and called for increased production. Release of pork from the nation’s strategic pork reserve was considered. By January 2008, the inflation rate rose to 7. 1%, which BBC News described as the highest inflation rate since 1997, due to the winter storms that month.
China’s inflation rate jumped to a new decade high of 8. 7 percent in February 2008 after severe winter storms disrupted the economy and worsened food shortages, the government said March 11, 2008. Throughout the summer and fall, however, inflation fell again to a low of 6. 6% in October 2008. By November 2010, the inflation rate rose up to 5. 1%, driven by a 11. 7% increase in food prices year on year. According to the bureau, industrial output went up 13. 3 percent. As supplies have run short, prices for fuel and other commodities have risen.
Conclusion
China has come to see globalisation as a way of transforming great power politics and establishing more co-operative forms of interstate competition that can increase the prospects for China’s peaceful rise. Because of Balancing act with currency , foreign holdings, inflation and growth, Forex Reserves, Trade Surplus, Increased domestic spending, Regulations & Policies and their implementation, The spreading of its global trade china will beat the global market in the downtown.
Reference
- www. wikipedia. org
- http://www. theglobeandmail. com
- http://www. sciencedirect. com
- www. google. com
- http://web. worldbank. org
