China overheated Economics / pemanasan ekonomi china

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China Overheating Economic Ilhamsyah Ramadhan University of Brawijaya

Transcript of China overheated Economics / pemanasan ekonomi china

Page 1: China overheated Economics / pemanasan ekonomi china

China Overheating Economic

Ilhamsyah Ramadhan

University of Brawijaya

Page 2: China overheated Economics / pemanasan ekonomi china

Overheating Economics

The economy that run in bad condition is called economic overheating.

Where high rates of inflation. That where financial authority duty to start little brakes at a time when there are sign of economics overheating so that economic grow still healthy.

Monetary and fiscal brakes must begin when the real sector is being soaring. Here the authority of the financial sector will be tested.

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Criteria of Overheating economic

1) whether the real economic growth rate has surpassed the potentialgrowth rate.

2) whether the economic growth is bounded by the bottlenecks of resources and technology.

3) whether the economy is facing the pressure of inflation and risking the accumulation of nonperforming loans (NPLs).

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China Overheating

China is facing destabilizing inflation; capital has flowed into China must faster than it has flowed out, in part because Chinese residents are prohibited from investing abroad.

China's reported inflation rate on consumer goods rose to 5.4 percent in March, but its implied inflation rate is 8.4 percent--a large discrepancy suggesting that China is underreporting its inflation rate.

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Why China is Overheating

China's economy is overheating because for years capital has been flowing into the People's Republic much faster than it has flowed out.

Recently, capital inflows to China have accelerated so rapidly that even the usual measures to absorb the impact on growth of the money supply and spending have failed.

Given the legal restrictions on nongovernment capital outflow, the only way China can slow the growth of excess liquidity and the upward pressure on inflation that has been building since last year is either to let the currency appreciate faster, raise interest rates more, or raise reserve requirements more.

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Positive Impact

The positive of the economic growth in China is mainly reflected in the improvement of the level of life of the community in that country.

In the last 10 years, the level of per capita income doubled, which obviously has implications for aggregate demand for goods and services in both countries. New cities with skyscrapers springing up as a phenomenon that has never been equalled by any other civilization.

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Negative Impact

One of the victims was a U.S. flooded cheap products from China.

Combined with extra expansionary fiscal policy during the Bush administration junior, Uncle Sam's trade deficit is getting unbearable. To fund the deficit should be no inflows. Therefore, in raising interest rates begin to up since 2002.