Entries Tagged 'china' ↓
December 8th, 2008 — china
Readers Question: China’s exports have decreased, and its growth as well, since the big economic crisis, but my question is How much does this affect its GDP because i heard they export to countries that are closer, like Japan for example instead of the states.
China has enjoyed near double digit growth for the past decade. However, this has largely been caused by exports. Last year, domestic consumption in China accounted for only 35% of GDP (this compares to 72% in the US). This accounts for the huge current account surplus that China has. This focus on export led growth is fine when the global economy is doing well, but now that the US economy is in a deep recession China is seeing a precipitous drop in exports. Economic growth in China is falling from 10% to 7%; this may still sound very impressive. But, the nature of the Chinese economy is that people argue, growth of less than 6% would lead to a sharp rise in unemployment.
Japan is also in recession, so exports to Japan will remain low.
In the short term, China will face difficulties. On the other hand, this does give some benefits to China
Help to reduce inflationary pressure. With growth at 10% there were worrying signs of overheating and inflation.
It may force China to boost its domestic consumption and rely less on export led growth. This would help to reduce the current account surplus and the global imbalance in savings and debt.
March 14th, 2008 — china, concepts
With Chinese inflation rising to over 7% many people are suggesting – Why Not Use Price Controls to Stop Food Inflation?
China and other Asian economies have seen a particular marked rise in food inflation. This creates various problems. Firstly, it particularly affects the rural poor who experience a decline in living standards. Secondly, the rise in food prices indirectly increase the cost of production for the manufacturing sector; many firms feed workers directly.
Imposing price controls enables the government to keep a lid on prices making life more affordable. This is done in countries such as India. However, the basic economic problem is that imposing price controls reduces the incentive for firms to supply more. Therefore, it can actually make the situation worse in the long term because if lower prices discourage investment, the fall in supply will raise future prices. It would be better to allow market forces to raise prices and (hopefully) increase supply.
Can Price controls ever be justified?
One case where price controls may be justified is if rising prices are caused by monopoly power. If prices are kept high by monopolies then a reduction in price will not cause lower supply.
February 21st, 2008 — china
Readers Question: How about the case of cost push inflation like that of China? there’s high inflation and yet the economy is not operating at its full level of employment and due to the fact that its exchange rate is fixed, monetary policies would not be effective but fiscal policies would further increase unemployment. What policies can be implemented to reduce this cost push inflation in a fixed exchange rate system?
Comment on post: Economic Policies to reduce inflation
It’s a good question. Inflation in China has recently reached an 11 year high of 7.1% (inflation China)
The Chinese blame rising food prices and rising oil prices. However, I would also blame the Chinese government for allowing demand to rise too quickly.
Loose Monetary Policy. The benchmark interest rate in China is currently 7.4%. Although it has been increased several times in the past 12 months, it still represents a very low real interest rate 0.3% (7.4-7.1%) Compare that to the UK, where real interest rates are closer to 3.0%. The low cost of borrowing is encouraging a boom in borrowing, but often the borrowing is badly directed and it could contribute towards a boom and bust in the Chinese property markets.
Undervalued Exchange Rate. Although the Yuan has appreciated in the past couple of years (although the exchange rate is supposed to be fixed it has been allowed to be gradually revalued) However, it is arguably still undervalued. The Chinese government is keen to keep it artificially low to stimulat export led growth. The weakness of the Yuan is indicated by the size of the Chinese Current account surplus.
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January 28th, 2008 — china, us
For more details see this post – Effects of US economic decline
China certainly exports alot to the US. Exports to US totalled $295bn in 2007 (they were 32% of exports
US trade with China TOTAL
- US exports to China $58,340.1m
- Chinese exports to US $295,817.6 m
- Trade Deficit -$237,477.5m Continue reading →
December 4th, 2007 — china
Please can you tell me the sites where i can find graphs about the chinese economy. for example, graph about the level of employment, export sector, import sector GDP and so on.
Recent Blog Posts on China
November 29th, 2007 — china
Economics changes. There was a time when macroeconomics was dominated by a dispute between Monetarists and Keynesians.
In the next few decades the role of China, and to a lesser extent India are going to play a crucial role in determining economic thought and the state of the world economy. The main feature of the Chinese economy is its overwhelming size. Primarily this is due to its population of 1.3 billion. I think if you take the combined population of China and India you have nearly 50% of the world’s population (figures not accurate)
The rise of the Chinese economy poses some interesting questions. – Who will benefit? and what should we be concerned about.
I wrote a short essay here about the future impact of the Chinese economy.
November 19th, 2007 — china
Readers Question: What is the most important reason why there is an improvement in the economic growth in the chinese out of the following policies. is it Government policy, education, investment from overseas, cheap labour or natural resources.
1. Cheap Labour
China has a large unskilled workforce willing to work for low wages. In the north many farmers struggle to make an income, therefore, they are willing to move south and work in manufacturing for low wages. Therefore, despite high growth, wages have remained low. This has meant Chinese exports have continued to be very competitive. Exports to the rest of the world are one of the main factors behind increased AD and China’s. Cheap labour has also helped avoid wage inflation, which could destablise economic growth.
2. Government Policy
The Chinese government have been keen to promote economic growth (they have been concerned about unemployment from privatised industries and agriculture). Therefore, they have kept the Yuan undervalued. This makes Chinese exports more competitive and has helped the exporting sector. The government have also kept interest rates relatively low. Although, it is sometimes difficult for small business to get loans. Low interest rates have also encouraged some irresponsible lending. Arguably the government have contributed to a boom and there is a danger that the government have allowed growth to be too high. This could lead to inflation and a downturn in the future.
3. Raw Materials.
China has good reserves of raw materials such as coal. However, for many raw materials they are net importers. This is true, particularly, for metals, oil and precious commodities. In fact demand from China is one of the main reasons behind the boom in commodity prices. Therefore, we could say China has experienced growth, despite having to import so many raw materials. The increasing price of oil and metals may be a constraint on future growth.
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November 9th, 2007 — china, currency
See also: Chinese Economy 2008
For many years the Chinese Yuan was tied to the dollar, however in July 2005 the yuan was finally allowed to break away from the dollar. However, unlike most other currencies, the Chinese government still try to influence the level of the Yuan. They have tried to keep the value of the Yuan low, to enable Chinese exports to remain competitive. Chinese record growth is due mainly to its exporting sector. The Chinese government fear that if the Yuan is allowed to become too strong, growth will slow causing unemployment to increase.
As a consequence of the undervalued Yuan, China has one of the world’s biggest current account surpluses (10% of GDP) (surplus = value of exports > value of imports)
As of November 9th, the Yuan appreciated to 7.4108 versus the dollar
The Chinese Yuan has appreciated by a small amount since 2005
Graph to show last 5 years Dollar vs Chinese Yuan (remenbi)
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