The Chinese economy has been on the rise over the years due to reforms made in the economy. This rapid growth has posed threats to the Western countries as it is taking over in the global industry. The economic reforms since 1978 can be attributed to the growth of the country as they measure the economic growth through changes made in the institutions and the comparative advantage following strategy that allows full play to China’s plentiful endowment with labor. The growth of the Chinese economy may also be attributed to the aggregate production function framework that extends or rather promulgated the dominance in the future. Similarly, the past economic growth China has continued into the future due to the decomposition of GDP growth that came about as a result of the income approach to the calculation of GDP into the growth of labor and other variables. The growth in the Chinese economy occurs due to the extrapolation of past growth in the future as well as price adjustment factors that carry substantial uncertainty. This paper focuses on the analysis of the growth of the economy in China
Theories and Asian precedents are used to explain the economic growth of China, focusing on economic transitions facts and strategies. The success at this level is considered to imply economic growth or rather the rise in living standards. This is accompanied by past trends that include creation of non-state firms in every sector of the economy, high saving rates and good initial conditions that entail small extent of central planning, unemployment in the countryside that could be taken up by township and village enterprises.
The Chinese economy has been attributed to factors and issues that their annual financial data are untrue which can be evidenced through the way housing has continued to show weaknesses and bad debts rising. However, some analysts have indicated that this might be part of China’s plan to rebalance the economy and initiate cool growth. This growth was not achieved easy as many challenges have emerged. Since 1978, the Chinese economy has maintained tremendous economic growth at an aggregate of 8%. These high rates of growth accompanied by the high population in China have posed various challenges to the environment. These challenges are referred to as negative externalities of growth which entail imposing certain costs on the society for them to receive the benefits of growth (Naughton, 69).
The major challenges that face the Chinese economic growth include a slowdown in the economy where there is a slow rate of the economic growth that reflects the market’s direction. It leads companies to losses and eventual bankruptcy due to the pressure on employment. Secondly, there is long term inflation where consumer price inflation has changed from 6.5% in 2011 to 2.2% in 2012 (Gomel, 8). This condition requires tolerance and resilience in order to curb the problem of inflation. There are also accumulating economic bubbles where the rapid economic growth in China has led to concerns that the bubbles formed might burst. If the government uses macro-control techniques that allow air out little by little without triggering an economic crisis, this will bring about economic growth and new competitive advantages that will restructure and upgrade businesses. However, future prospects indicate that there will be unprecedented pressure which will cause high degrees of vigilance and attention. The other challenge is rebalancing where there are four major shifts in the economy. These shifts include: the shift from external demand to domestic demand in investment driven growth to consumer led growth, the shift from government investment in private investment and the shift from the traditional elements of production to modern advanced elements. This imbalance should be maintained where China needs to promote the pace of growth. They should however ensure that the transformation process evades middle income and high income traps (Gomel, 3).
Additionally, there is the challenge of adjustments to industries where over production and upgrade of technology, management as well as employment of skilled personnel needs to be observed. This should be coupled with conservation of energy. The constraints on resources and the environment have been on the rise where demand for energy and raw materials have increased over the years. Similarly, the rise in social costs such as government revenue have declined which has increased the costs for the government as they increase the expenses of pensions, health care, housing and revenue as well as education. These conditions hinder the growth of the economy. The growth of the Chinese economy has weakened the international environment as it has slowed down the global economy by deteriorating the global standards. People have thus lost trust in the Chinese with fear that they will take over the technological control over their resources (Xu, 119). The other challenge is that there has been increased resistance to reform where some of the activists are against reforms in the Chinese economy. This has brought rise to the belief that disparities between the rich and the poor were attributed to market oriented reforms which have imposed resistance (Xu, 131).
The past successful export-led growth model should be discarded where they should embrace a more consumption model. This shift requires funding of the state owned enterprises that should focus on subsidizing state owned companies. The successful export led growth practiced in the past should not continue due to the fact that it brought about low wage rates and export driven growth. It has victimized the Chinese people as more expenses are imposed during over production of goods while the wages do not match the labor. The Chinese economy should focus on reducing the reliance on low end manufacturing and increase the value chain. This should be coupled with promotion of nation champions, protectionist impulses and investment barriers that should drive China to look for ways to highlight or promote local companies at the expense of international competition. Market rationalism is another policy that should be adopted in order to boost China as a middle income country (Naughton, 71).
The Chinese economy should be further reformed in ways that focus on shifting the economy from one driven investment that entails infrastructure to one where the spending power of Chinese consumers is enhanced. The challenge of unemployment should be eradicated through increasing the domestic stability. This requires economic liberalization that boosts the strong forces that will attract large numbers of people to enter the workforce. This will encourage more participation in the modern economy that will eventually enhance the living standards of the people. The local businesses should also be promoted where efficient banking systems should be put in place in order to facilitate the growth of the economy. This should be coupled with better saving strategies and sufficient loans that boost the local enterprises. The Chinese Yuan should be made independent of the American dollar in order to regulate the undervaluation of the currency. This would reduce inflationary pressure in the Chinese economy and lower the prices of buying foreign goods.
Leaders should be on the front line to improve the economy of China through cohesion processes. It allows internal discussion and valuation of the local trends that should used to boost the economy. They should enhance the foreign policy by ensuring that the goods produced in the country are accepted across the world with a view to attract more investors. The territorial issues should be prohibited while the social development should be improved to lower the costs for the government on expenditures such as pensions, health care, housing and education. Tax revenues should be at increased which will eventually boost government income from land use.
Gomel, G, D. Marconi, I. Musu, and B. Quintieri. The Chinese economy: Recent trends and policy issues. Berlin, Heidelberg: Springer Berlin Heidelberg, 2013. Print.
Naughton, Barry. "The Impact of the Tiananmen Crisis on China's Economic Transition." China Perspectives 2 (2009): 63-78. Web.
Xu, L. China's economy in the post-WTO environment: Stock markets, FDI and challenges of sustainability. Cheltenham, UK: Edward Elgar Publishing, 2011. Print.