Since 1978, China has started taking steps towards a free market. Because of this many parts of the Chinese economy, political structure, education, health and infrastructure has experience some positive change. In this report, I will discuss with you about these changes.
Economic Trend –
China’s GDP growth has been miraculous and because it has been named the most successful transition economy in world. On average the GDP has been growing about 8% since 1978. However as you can see from the graph, most of growth happened between 1990 and 2000. This is possibly because of the fact that China was opening up during this time. Because of the cheap labor and lower environmentally regulations, companies from outside China started coming in (China is becoming a free market). Another reason for the growth is the amount of goods, China is exporting.
The Growth in GDP is one of the positive effects that the free market brought to China. Looking at the graph, we can tell that the GDP is increasing steadily. So in the future, I would predict it to continue like this however because of the ongoing financial crisis, I think the GDP will not grow a lot or maybe even decrease.
Inflation has been one of the negative effects of China’s transition to free market. Because of monopolies in some markets, inflation has been increasing. This is because the monopoly would price their products really high (higher than normal). This would mean that product is not worth as much as it should be. This creates inflation. China’s inflation has been increasing steady throughout the last few years. In the future, I would predict that the inflation would decrease because all the policies the government in implementing and because of the financial crisis.
Since 2005, the balance of payment has had a radical rise in surplus. Figures from the report of 2007 tell us quote ‘China’s surplus under the current account in 2007 totaled USD 371.8 billion’. This is a more than double of what the surplus was in 2005. In the last two years there has been many argument between the US and China because of the balance of payment.
3 Main Economic Problems that China faces
1. Government Control
I don’t think that China will successfully become a free market. There is too much government control. A survey shows that China is the bottom third (out of 127 countries) for economic freedom. Official data from 2003 shows that 38% of GDP comes from state-owned companies which employ 85 millions(less than 10% of population) people only. Figures show that 56% of the capital (1.2 trillion dollars worth) is owned by the government I think the only way to solve this problem would be sell some of the state-owned companies to private individuals. This will not only help increase the GDP but as the company starts making profit, they will start expanding. Meaning they will employ more people.
2. Income Inequality
The Economic growth has benefited only people in the south and the east. Lots of people in North and West are suffering poverty and lots don’t get paid minimum wage as there is very limited jobs. This is creating a growing difference between incomes between the north and the south. The Chinese government has created more jobs in north. This can be done by giving companies from outside China cheap land in the north.
Lately there has been growing concerns about the economic boom, China is facing right now. This is concern because this boom may result to high inflation. This boom can also be followed by a recession. This is because the boom will make companies increase prices (to make maximum profit). This will make inflation higher. Goods and Services will cost more. Consumers won’t spend as much money. This will start a recession. I think the Chinese government show start stabilizing the economy. This will only happen if the Chinese government increases the value of the Yuan.