Analysis of the Economy of China

Analysis of The Economy of China OVERVIEW OF DECADES OF CHINA'S ECONOMY AND GOVERNMENT Misa Vira - A059 Ayushi Yadav - A060 Introduction China, the world's second most populous country, is a global economic powerhouse and the second-largest economy by GDP. It transitioned from a centrally planned economy to a more market-oriented one in the late 20th century, achieving rapid industrialization and urbanization. Known for its manufacturing dominance, China is a vital player in global trade, exporting electronics, machinery, and textiles. With initiatives like the Belt and Road, it aims to expand its economic influence further. However, challenges such as income inequality, environmental concerns, and demographic shifts, including an aging population, pose significant hurdles. China's economic trajectory remains pivotal to global growth trends. China before economic reforms (until 1978) 1. When China was under the leadership of Chairman Mao Zedong, it had a centrally planned economy. 3. industrial production became 75% government controlled by 1978. 2. Followed the method of collectivization, including policies like The Great Leap Forward. 4. China's GDP grew at an estimated 4.4% annually from 1953 to 1978, with major downturns during the Great Leap Forward and the Cultural Revolution. Chinese Per Capita GDP according to Economist Angus Maddison (1950-1978) China after economic reforms (1979-present After Mao's death, economic reforms under Deng Xiaoping embraced free-market principles and reopened trade with the West. Key reforms included granting farmers ownership rights, creating Special Economic Zones (SEZs). decentralizing policy-making, and eliminating state price controls. From 1979 to 2023, China's GDP grew at an average of 8.93% annually, doubling approximately every 8 years (Rule of 72). The 2008 Chinese Economic Stimulus Plan helped China recover from the global financial crisis, with GDP growth averaging 9.7% from 2008-2010. Recent GDP trends: peaked at 10.6% in 2010, slowing to an estimated 4.8% by 2024 due to domestic adjustments and global economic challenges. China after Economic Reforms (continued) GDP: $17,794.78 15k 10k 5k GDP (Billions of US $) 12.5k 10k 7.5k Sk 2.5k Per Capita: $12,614 Per Capita (US $) 15 Growth: 5.20% Anmial Change 1980 1985 1990 1995 2000 2005 2010 2015 Sunday 31 Dec 2023 Chinese Per Capita GDP (1979-Present) 1. Industrialisation 2. World's largest manufacturer Reasons for China remaining a Superpower 3. Currency Industrialisation High output growth from 1952-1978 as China was focusing on its heavy industries. Today, China is the global leader in manufacturing and accounts for nearly half of the world's steel production. China's mining sector extracts a variety of resources, including coal, iron ore, salt, oil, gas, and gold. Two factors have consistently driven China's economy to the point that it is: openness to the international economy and domestic market liberalization. World's Largest Manufacturer China accounted for 31% of global manufacturing output in 2022. Until 2010, it was the US that had the largest percentage involvement in global manufacturing before China gradually took over, surpassing the United States by almost 15% in 2022. Main reasons why China has remained the worlds largest manufacturer 1. Abundance of cheap labour 2. Lack of strict laws on child labour and minimum wages 3. Low regulatory reforms 4. Lower tax rates Currency Of China 01 To keep Chinese goods affordable for foreign buyers, boosting demand for exports and enhancing China's position in global markets, China has intervened in currency markets by buying U.S. dollars and selling yuan. 02 In late 2005, the yuan was estimated to be undervalued by around 30% against the U.S. dollar. In 2017, the yuan strengthened by 8% against the dollar but this appreciation reversed in 2018. 03 By keeping the yuan undervalued, China has maintained a competitive edge. This strategy has contributed to China's economic rise, creating jobs and increasing foreign exchange reserves. 04 An undervalued yuan makes imports more expensive for Chinese consumers and businesses, which can limit domestic purchasing power and investment in foreign goods and services. Negative Factors Influencing the Chinese Economy: $ One child policy The burdening rise in middle class Covid 19 impact One Child Policy 1 In 1978, the fertility rate was 1.8% and the population was still growing fast. Then in 1979, the one child policy was introduced. The population growth rate decreased to less than 1% in the 1990s and kept at 0.5% after 2005. 2 China converted to a 2 child policy since the size of the working class slowly started shrinking due to a larger portion of the population being retired. the rising costs of caring for older retired family members are expected to increasingly burden Chinese households. 3 Another problem the one child policy posed was that the household saving rate subsequently soared, from 10.4% in 1983 to a staggering 30.5% in 2011. The average saving rate for an only-child household was 21.3%, compared to 12.8% for a household with twins. 4 Having a second child would provide more security to the parents and they would be more likely to invest in riskier assets which would be helpful for the economy. They would also feel more comfortable consuming more. The Burdening rise in Middle Class Population Over the course of 2 decades, the Chinese government has pulled millions of people out of poverty leading to an excessive rise in the middle class. In 2000, China's middle class amounted to just three percent of its population. By 2018 this number had climbed to over half of the population, constituting nearly 707 million people. The disposable income of the Chinese middle class has led to an increase in domestic consumption. From 2000 to 2018, annual health care expenditure grew from $55.5 billion to $893.5 billion. Housing, due to high demand, has become unaffordable in urban areas. The increase in consumption levels has contributed to environmental damages. There is also a rise in animal protein consumption which has increased agricultural production and placed a considerable strain on the environment. COVID-19 Impact China's economic growth fell from around 6% in 2019 to 2.2% in 2020, severely disrupted by the pandemic's impact on production, investment, consumer demand, and trade. Growth rebounded to 8.4% in 2021 due to a low base effect but dropped to around 3% in 2022 under the strict "Zero-COVID" policy. Heightened tensions with trading partners like the UK and USA led to safety concerns and job losses for Chinese nationals abroad, reducing remittances to China. Rising geopolitical tensions, including India's boycott of Chinese products, significantly affected trade and strained economic recovery. Widespread private company closures exacer exacerbated unemployment, with youth unemployment becoming a critical challenge. Private enterprises, which provide 80% of employment, were particularly impacted. Conclusion Rapid industrialization and favorable labor conditions have attracted significant foreign investment. Economic growth has revealed key challenges, such as an aging population, environmental degradation, and income inequality. Prioritization of rapid expansion has come at the cost of sustainability and societal well-being. Future growth depends on investments in green technology, education, healthcare, and social infrastructure for sustainable development.