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A

GLOBAL / COUNTRY STUDY AND REPORT

ON

Role of Macroeconomic Factor in China

Submitted toK.P. PATEL SCHOOL OF MANAGEMENTAND COMPUTER STUDIES, KAPADWANJ

IN PARTIAL FULFILLMENT OF THE

REQUIREMENT

OF THE AWARD FOR THE DEGREE OFMASTER OF BUSINESS ADMINISTRATION

InGujarat Technological University

Under the Guidance ofMr. Hitesh shahAsst. Professor

Submitted by

MBA SEMESTER III/IVK.P.PATEL SCHOOL OF MANAGEMENT

AND COMPUTER STUDIES KAPADWANJ

Patel Jalpen 107240592049

Panchal Rupen 107240592019

Machi rajesh 107240592042

Patel mukti 107240592028

Shah dhruvi 107240592029

Ms. Surbhi laddha 107240592021

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Affiliated to Gujarat Technological UniversityAhmedabad

November, 2011

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Students Declaration

We, JALPEN,RUPEN,RAJESH,MUKTI.DHRUVI,SURBHI, hereby declare that

the report for Global/ Country Study Report entitled Role Of

Macroeconomic Factor In China is a result of our own work and our

indebtedness to other work publications, references, if any, have been duly

acknowledged.

Place: KAPADWANJ

Date

(Signature)

Patel jalpenPanchal rupen

Machi rajeshPatel mukti

Shah dhruviMs. Surbhi laddha

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PREFACEBeing an M.B.A. student, it is necessary to prepare a global country report.

Their object of practical training & knowledge is to develop atmosphere and allother business practices.

The preparation of the whole report was a great opportunity for us to

explore ourselves to the practical field. All analysis done by us regarding the

CHINA country could make us all confident enough & prove ourselves. We

could come out of the bookish knowledge.

Preparation of such type of report calls for intellectual nourishment,

professional help and encouragement. Due to report, we are exposed to the

method and practices being use in the field of applications.

With the help of companys information, we are come to know of style

of functioning & operating activity of company. We also know how our

knowledge is to be transformed to venality inform of company. It is indeed a

golden opportunity for every in management.

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A c k n o w l e d g e m e n t

Every student owes a great deal to others and we are no

exception because learning is a process which entails give and take;

exchange of ideas and value addition through discussions. So it gives us

immense pleasure to be able to express our gratitude to one and all who have

contributed to the successful completion of our project with a great learning.

First and foremost, we would like to thank our project guide,

Mr.Hitesh shah He gave us an in-depth knowledge of the working of the

GCSR report and enhanced our understanding on its various aspects. His

invaluable and significant guidelines improved our outlook and contributed in

making our project a real learning experience. He also encouraged us to put

in our best efforts and bring out the best of our abilities.

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VI .CONTENTS

.No. CONTENTS No.

1 THE ROLE OF MACROECONOMIC

FACTORS IN GROWTH

1

2 ICT Industry in China 1

3 MACROECONOMIC FACTOR WITH DESCRIPTION 3

CONSUMER CONFIDENCE 3

ABOUT CURRENT ACCOUNT 4

CURRENT ACCOUNT TO GDP 5

ABOUT GDPPER CAPITA (ADJUSTED BY

CONSTANT PRICES)

5

ABOUT GDPPER CAPITA ADJUSTED BY

PURCHASING POWER PARITY

6

ABOUT GOVERNMENT BONDS 7

GOVERNMENT BUDGET 8

GOVERNMENT DEBT TO GDP 9

ABOUT EXPORTS 9

IMPORTS 10

CHINA'S INFLATION RATE EASES IN AUGUST 10

INDUSTRIAL PRODUCTION 11

http://www.ptl-group.com/index.php/en/china-blog/226-ict-industry-in-chinahttp://www.ptl-group.com/index.php/en/china-blog/226-ict-industry-in-china

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CHINA RAISES INTEREST RATES 11

UNEMPLOYMENT RATE DEFINITION 12

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THE ROLE OF MACROECONOMIC FACTORS IN GROWTH

It is now widely accepted that a stable macroeconomic framework isnecessary though not sufficient for sustainable economic growth! In this paper

I present international cross-sectional regression evidence that supports the

view that growth is negatively associated with inflation, and positively

associated with good fiscal performance and undistorted foreign exchange

markets- I also present evidence suggesting that the causation runs in part

from good macroeconomic policy to growth.

The view that a stable macroeconomic framework is conducive to grow

this also supported by much striking non-regression evidence, In Latin

America, the recovery of economic growth in Chile and Mexico was preceded

by the restoration of budget discipline and the reduction of inflation.1 By

contrast, the ongoing growth crisis in Brazil coincides with high inflation

punctuated by stabilization attempts and continued macroeconomic instability.

The fast growing countries of East Asia have generally maintained single or

tow double-digit inflation, have for the most part avoided balance of payments

crises, and when they have had them --as for instance in Korea in 1980 --

moved swiftly to deal with them. The lessons of the case study evidence

amassed in the major World Bank research project headed by Little, Cooper,

Corded and Rajapatirana (1992), Summarized in Cordon (1991), support the

conventional view. The notion that macroeconomic stability is aioli Sufficient

for growth is supported by evidence from Africa, where most of the countries

of the franc zone have grown slowly since 1980 despite low inflation.

Used the conventional approach of adding macroeconomic variables to

the basic growth regression. In this paper, in Sections III through V, I develop

an alternative approach due to Victor Elias (1992). a regression analog ofgrowth accounting. I present both pure cross-sectional regressions as well as

panel regressions, which

exploit the time series as well as cr033-sectional variation in the data. I also

explore non-sincerities in the relationship between inflation and growth. In

Section VI I discuss the issue of the causality between inflation and economic

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growth. Then in Section VII I identify and discuss some apparent exceptions,

countries where high growth took place despite high inflation and/or large

deficits, and conclude that the statement that macroeconomic stability isnecessary for sustainable growth is too strong, but that the statement that

macroeconomic stability is conducive to sustained growth remains accurate.

The paper opens with a discussion in Section I of the notion of a stable

macroeconomic framework, and of the theoretical considerations linking

growth to macroeconomic policies. In Section II I briefly review recent

evidence on the link between macroeconomic conditions and growth, most of

it based on the standard mixed regression which includes among its

repressors the rate of investment.

ICT INDUSTRY IN CHINA

China ICT industry has been an engine of the country's economic growth

growing two to three times faster than GDP over the past 10 years. China's

booming information industry is expected to maintain its robust health in the

coming years. China imported USD$245.2 billion of ICT/Electronic products in

2007, approximately two-thirds of which were electronic components. Exports

of ICT/Electronic products from China in 2007 reached USD$459.5 billion,

accounting for 37.7% of the country's exports.

Overall revenues of ICT/Electronic products in 2007 increased by 18%,

with computer manufacturing, communications equipment manufacturing and

electronic components accounting for over 61.4% of revenues.2009 is

expected to be a challenging year for both Chinas economy and Chinas IT

market. IDC, global provider of market intelligence, recently lowered

expectations for Chinas ICT market in 2009, adjusting the size of the market

to US$71.16 billion, with the growth rate down from 13.5% to 9.1%.The ICT

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market and its sub-sectors in China are enormous and continued growth is

expected, but the industry is intensely competitive and there are many

challenges in the regulation and management of the ICT industry whichimpact foreign participation in the market.

There exists a strong bias toward large multinational companies with

strong global brands and local presence. The Internet in China is strictly

regulated by censorship, monitoring, and enforcement rules. The protection of

intellectual property rights is of constant concern.China is focusing much effort

and resources to improve its innovation capabilities. The State Council's

Medium and Long-term Plan on S&T Development (2006-2020), calls for the

government to actively take part to foster domestically-produced innovative

technologies and reduce dependence on foreign technologies. This can

present negative effects for foreign companies as the use of domestic

standards and government procurement policies to favor indigenous

innovation gives preference and protection to domestic industries.The

regulatory framework of the ICT sector is complicated in China. The major

watchdog is the Ministry of Industry and Information Technology (MIIT). Other

government authorities involved in the ICT sector, depending upon the sub-

sector, could include Ministry of Science & Technology (MOST), Ministry of

Public Security (MPS), General Administration of Press and Publication

(GAPP), and State Administration of Radio, Film and Television (SARFT).

CHINA'SGROWTHSTEADYAT9.5%INQ2

China's second-quarter GDP rose 9.5% from a year earlier, compared

with 9.7% growth in the first quarter, the National Bureau of Statistics said on

July 13, 2011. The rate of growth increased on a sequential basis. GDP rose

2.2% from the preceding quarter, the statistics bureau said, compared with

2.1% growth in the first quarter. Industrial production growth in June also

came in much faster than expected, rising 15.1% from a year earlier,

compared with 13.3% in May. Economists had expected it to slow to13.1%.Many economists have said that they expect the central bank's latest

rate increase earlier this month to be the last for the year, but the strong data

calls that forecast into question for some. Non-rural fixed asset investment

growth, a key gauge of construction activity, slowed slightly to rise 25.6% from

a year earlier in the January-June period, compared with 25.8% growth

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recorded in the January-May period. Retail sales in June rose 17.7% from a

year earlier, compared with a 16.9% rise in May.

CONSUMERCONFIDENCEConsumer confidence is the degree of optimism that consumers feel

about the overall state of the economy and their personal financial situation.

How confident people feel about stability of their incomes determines their

spending activity and therefore serves as one of the key indicators for the

overall shape of the economy. In essence, if consumer confidence is higher,

consumers are making more purchases, boosting the economic expansion.

On the other hand, if confidence is lower, consumers

ABOUTCURRENTACCOUNT

Current Account is the sum of the balance of trade (exports minus

imports of goods and services), net factor income (such as interest and

dividends) and net transfer payments (such as foreign aid). The balance of

trade is typically the most important part of the current account. This means

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that changes in the patterns of trade are key drivers in the current accounts of

most of the world's economies. However, for the few countries with substantial

overseas assets or liabilities, net factor payments may be significant. Positivenet sales to abroad generally contribute to a current account surplus; negative

net sales to abroad generally contribute to a current account deficit. Because

exports generate positive net sales, and because the trade balance is typically

the largest component of the current account, a current account surplus is

usually associated with positive net exports. The net factor income or income

account, a sub-account of the current account, is usually presented under the

headings income payments as outflows, and income receipts as inflows.

Income refers not only to the money received from investments made abroad

(note: investments are recorded in the capital account but income from

investments is recorded in the current account) but also to the money sent by

individuals working abroad, known as remittances, to their families back

home. If the income account is negative, the country is paying more than it is

taking in interest, dividends, etc. For example, the United States' net income

has been declining exponentially since it has allowed the dollar's price relative

to other currencies to be determined by the market to a point where income

payments and receipts are roughly equal of trade forms part of the current

account, which also includes other transactions such as income from the

international investment position as well as international aid. If the current

account is in surplus, the country's net international asset position increases

correspondingly. Equally, a deficit decreases the net international asset

position.

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CURRENTACCOUNTTOGDP

Current account balance as a percent of GDP (current account to

GDP) is the current account a country has in percentage of its Gross

Domestic Product. The current account is one of the two most important

components of the balance of payments; the other is the capital account. The

current account is the sum of the balance of trade (exports minus imports),net factor income (interest and dividends) and net transfer payments (foreign

aid). Current account balance as a percent of GDP indicates the nature of a

country's foreign trade. Usually, countries recording a strong current account

surplus have an economy heavily dependent on exports revenues, with high

savings ratings but weak domestic demand.

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ABOUT GDP PER CAPITA (ADJUSTED BY CONSTANT

PRICES)

The GDP dollar estimates given on this page are adjusted for inflation. The

term Constant Prices refers to a metric for valuing the price of something overtime, without that metric changing due to inflation or deflation. The gross

domestic product per capita is the value of all final goods and services

produced within a nation in a given year divided by the average (or mid-year)

population for the same year. The gross domestic product (GDP) is one of the

measures of national income and output for a given country's economy. GDP

can be defined in three ways, all of which are conceptually identical. First, it is

equal to the total expenditures for all final goods and services produced within

the country in a stipulated period of time (usually a 365-day year). Second, it

is equal to the sum of the value added at every stage of production (the

intermediate stages) by all the industries within a country, plus taxes less

subsidies on products, in the period. Third, it is equal to the sum of the income

generated by production in the country in the periodthat is, compensation of

employees, taxes on production and imports less subsidies, and gross

operating surplus.

ABOUT GDP PER CAPITA ADJUSTED BY PURCHASING

POWERPARITY

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The GDP dollar estimates given on this page are derived from

purchasing power parity (PPP) calculations. Using a PPP basis is arguably

more useful when comparing generalized differences in living standards onthe whole between nations because PPP takes into account the relative cost

of living and the inflation rates of the countries, rather than using just

exchange rates which may distort the real differences in income. However,

economies do self-adjust to currency changes over time, and technology

intensive and luxury goods, raw materials and energy prices are mostly

unaffected by difference in currency (the latter more by subsidies), despite

being critical to national development, therefore, the sales of foreign apparel

or gasoline per liter in China is more accurately measured by the nominal

figure, but everyday food and haircuts by PPP. The gross domestic product

per capita is the value of all final goods and services produced within a nation

in a given year divided by the average (or mid-year) population for the same

year. The gross domestic product (GDP) is one of the measures of national

income and output for a given country's economy. GDP can be defined in

three ways, all of which are conceptually identical. First, it is equal to the total

expenditures for all final goods and services produced within the country in a

stipulated period of time (usually a 365-day year). Second, it is equal to the

sum of the value added at every stage of production (the intermediate stages)

by all the industries within a country, plus taxes less subsidies on products, in

the period. Third, it is equal to the sum of the income generated by production

in the country in the periodthat is, compensation of employees, taxes on

production and imports less subsidies, and gross operating surplus (or

profits).

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ABOUTGOVERNMENTBONDS

A government bond is a bond issued by a national government

denominated in the country's own currency. Bonds issued by national

governments in foreign currencies are normally referred to as sovereign

bonds. The first ever government bond was issued by the English government

in 1693 to raise money to fund a war against France. Government bonds are

usually referred to as risk-free bonds, because the government can raise

taxes to redeem the bond at maturity. Some counter examples do exist where

a government has defaulted on its domestic currency debt, such as Russia in

1998 (the "ruble crisis"), though this is very rare. As an example, in the US,

Treasury securities are denominated in US dollars. In this instance, the term

"risk-free" means free of credit risk. However, other risks still exist, such as

currency risk for foreign investors (for example non-US investors of US

Treasury securities would have received lower returns in 2004 because the

value of the US dollar declined against most other currencies). Secondly,

there is inflation risk, in that the principal repaid at maturity will have less

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purchasing power than anticipated if the inflation outturn is higher than

expected. Many governments issue inflation-indexed bonds, which should

protect investors against inflation risk. Bonds are issued by public authorities,credit institutions, companies and supranational institutions in the primary

markets. The most common process of issuing bonds is through underwriting.

In underwriting, one or more securities firms or banks, forming a syndicate,

buy an entire issue of bonds from an issuer and re-sell them to investors. The

security firm takes the risk of being unable to sell on the issue to end

investors. However government bonds are instead typically auctioned. A bond

is a debt security, in which the authorized issuer owes the holders a debt and,

depending on the terms of the bond, is obliged to pay interest (the coupon)

and/or to repay the principal at a later date, termed maturity. A bond is a

formal contract to repay borrowed money with interest at fixed intervals. Thus

a bond is like a loan: the issuer is the borrower (debtor), the holder is the

lender (creditor), and the coupon is the interest. Bonds provide the borrower

with external funds to finance long-term investments, or, in the case of

government bonds, to finance current expenditure. Certificates of deposit

(CDs) or commercial paper are considered to be money market instruments

and not bonds. Bonds must be repaid at fixed intervals over a period of time.

GOVERNMENTBUDGET

A government budget is a legal document that is often passed by the

legislature, and approved by the chief executive-or president. For example,

only certain types of revenue may be imposed and collected. Property tax is

frequently the basis for municipal and county revenues, while sales tax and/or

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income tax are the basis for state revenues, and income tax and corporate tax

are the basis for national revenues. The two basic elements of any budget are

the revenues and expenses. In the case of the government, revenues arederived primarily from taxes. Government expenses include spending on

current goods and services, which economists call government consumption;

government investment expenditures such as infrastructure investment or

research expenditure; and transfer payments like unemployment or retirement

benefits. Budgets have an economic, political and technical basis. Unlike a

pure economic budget, they are not entirely designed to allocate scarce

resources for the best economic use. They also have a political basis wherein

different interests push and pull in an attempt to obtain benefits and avoid

burdens. The technical element is the forecast of the likely levels of revenues

and expenses.

GOVERNMENTDEBTTOGDP

Government debt as a percent of GDP, also known as debt-to-GDP

ratio, is the amount of national debt a country has in percentage of its Gross

Domestic Product. Basically, Government debt is the money owed by the

central government to its creditors. There are two types of government debt:

net and gross. Gross debt is the accumulation of outstanding government

debt which may be in the form of government bonds, credit default swaps,

currency swaps, special drawing rights, loans, insurance and pensions. Net

debt is the difference between gross debt and the financial assets that

government holds. The higher the debt-to-GDP ratio, the less likely the

country will pay its debt back, and more likely the country is to default on its

debt obligations.

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ABOUTEXPORTS

Export goods or services are provided to foreign consumers by

domestic producers. It is a good that is sent to another country for sale.

Export of commercial quantities of goods normally requires involvement of the

customs authorities in both the country of export and the country of import.

The advent of small trades over the internet such as through Amazon and e-

Bay has largely bypassed the involvement of Customs in many countries due

to the low individual values of these trades. Nonetheless, these small exports

are still subject to legal restrictions applied by the country of export.

CHINA'SINFLATIONRATEEASESINAUGUST

Inflation rate in China rose 6.2 percent over a year earlier, cooling from

6.5 percent in July, the National Statistics Bureau said on September 9.

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IMPORTS

An import is any good or service brought into one country from another

country in a legitimate fashion, typically for use in trade. Import goods or

services are provided to domestic consumers by foreign producers. An importin the receiving country is an export to the sending country. Imports, along

with exports, form the basis of international trade. Import of goods normally

requires involvement of the Customs authorities in both the country of import

and the country of export and is often subject to import quotas, tariffs and

trade agreements. When the "imports" are the set of goods and services

imported, "Imports" also means the economic value of all goods and services

that are imported. The macroeconomic variable I usually stands for the value

of these imports over a given period of time, usually one year.

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INDUSTRIALPRODUCTION

Industrial Production is an economic report that measures changes in

output for the industrial sector of the economy. The industrial sector includes

manufacturing, mining, and utilities. Although these sectors contribute only a

small portion of GDP (Gross Domestic Product), they are highly sensitive to

interest rates and consumer demand. This makes Industrial Production an

important tool for forecasting future GDP and economic performance.

Industrial Production figures are also used by central banks to measure

inflation, as high levels of industrial production can lead to uncontrolled levels

of consumption and rapid inflation.

CHINARAISESINTERESTRATES

People's Bank of China increased interest rates for the third time this

year on July 6, making clear that taming inflation is a top priority even when

as the economy slows.

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Benchmark one-year lending rates will be raised 25 basis points to

6.56 percent, and benchmark one-year deposit rates will be raised 25 basis

points to 3.5 percent.Abundant liquidity and elevated commodity prices drove China's

inflation to a 34-month high of 5.5 percent in May, unsettling Beijing which

worries rising prices may stir social unrest.

UNEMPLOYMENTRATEDEFINITION

The labor force is defined as the number of people employed plus the

number unemployed but seeking work. The participation rate is the number of

people in the labor force divided by the size of the adult civilian no institutional

population (or by the population of working age that is not institutionalized).

The nonlabour force includes those who are not looking for work, those who

are institutionalized such as in prisons or psychiatric wards, stay-at home

spouses, kids, and those serving in the military. The unemployment level is

defined as the labor force minus the number of people currently employed.

The unemployment rate is defined as the level of unemployment divided by

the labor force. The employment rate is defined as the number of people

currently employed divided by the adult population (or by the population of

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working age). In these statistics, self-employed people are counted as

employed.

Variables like employment level, unemployment level, labor force, and

unfilled vacancies are called stock variables because they measure a quantity

at a point in time. They can be contrasted with flow variables which measure a

quantity over duration of time. Changes in the labor force are due to flow

variables such as natural population growth, net immigration, new entrants,

and retirements from the labor force. Changes in unemployment depend on:

inflows made up of non-employed people starting to look for jobs and of

employed people who lose their jobs and look for new ones; and outflows of

people who find new employment and of people who stop looking for

employment.

When looking at the overall macro economy, several types of unemployment

have been identified, including:

Frictional unemployment This reflects the fact that it takes time for

people to find and settle into new jobs. If 12 individuals each take one month

before they start a new job, the aggregate unemployment statistics will record

this as a single unemployed worker. Technological change often reduces

frictional unemployment, for example: the internet made job searches cheaper

and more comprehensive.

Structural unemployment This reflects a mismatch between the skills and

other attributes of the labor force and those demanded by employers. If 4

workers each take six months off to re-train before they start a new job, the

aggregate unemployment statistics will record this as two unemployed

workers. Technological change often increases structural unemployment, for

example: technological change might require workers tore-train.Natural rate of unemployment This is the summation of frictional and

structural unemployment. It is the lowest rate of unemployment that a stable

economy can expect to achieve, seeing as some frictional and structural

unemployment is inevitable. Economists do not agree on the natural rate, with

estimates ranging from 1% to 5%, or on its meaning some associate it with

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"non-accelerating inflation". The estimated rate varies from country to country

and from time to time.

Demand deficient unemployment In Keynesian economics, any level ofunemployment beyond the natural rate is most likely due to insufficient

demand in the overall economy. During a recession, aggregate expenditure is

deficient causing the underutilization of inputs (including labor). Aggregate

expenditure (AE) can be increased, according to Keynes, by increasing

consumption spending (C), increasing investment spending (I), increasing

government spending (G), or increasing the net of exports minus imports

(X?M). {AE = C + I + G + (X?M)}

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Bibliography

1. www.google.com

2. www.tradingeconomics.com

3. www.livemint.com

http://www.google.com/http://www.google.com/http://www.tradingeconomics.com/http://www.tradingeconomics.com/http://www.google.com/