Rise of China as an Economic Power

8/3/2019 Rise of China as an Economic Power

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PROJECT REPORT ON:

RISE

OF

CHINAAS

AN ECONOMIC POWER

Submitted to Submitted

by:

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Mrs. Navjot Kaur Arpandeep

Kaur

MBA- 1C

Roll no: 5218

TABLE OF CONTENTS

Introduction about china Economic history of china

Republic of china ( 1911- 1949)

Peoples Republic of China (1949 onwards)

From planned economy to free market powerhouse:

The post - Mao era ( 1976 onwards )

Worlds second largest economy

Brief overview of chinas present economy China as worlds second largest economy Comparison with U.S. & Japans economy

Graphical presentation of chinas economic growth Reasons of chinas rapid economic growth Forecasts about chinas economy

IMF Report

Other forecasts

Conlusion

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INTRODUCTION ABOUT CHINA

China is one of the biggest countries in the world. It has an area

of about 9.6 million square

kilometers which comprises

about 6.5 per cent of the

world total land area. Its

population of more than one

billion accounts for 23 per

cent of the world's

population. China is the

world's oldest continuous

civilization. World Travel

Organization predicts that by year 2020, China will become the

number one travel destination in the world.

China is situated in the eastern part of Asia on the west coast of

the Pacific Ocean. It is the third largest country in the world (after

Canada and Russia). China has a land border of 22,143.34

kilometers long and is bordered by twelve countries: Korea in the

east; Russian in the northeast and the northwest; Mongolia in the

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north; India, Pakistan, Bhutan and Nepal in part of the west and

southwest; Burma, Laos and Vietnam in the south.

Beside a vast land area, there are also extensive neighboring

seas and numerous islands. The coastline extends more than

14,500 kilometers.

ECONOMIC HISTORY OF MODERN CHINA

The economic history of modern China began with the fall of

the Qing Dynasty in 1911.

REPUBLIC OF CHINA ( 1 Z 911-1949)

The Republic of China was a

period of turmoil for China after the

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collapse of the Qing dynasty. From 1911 to 1927, China virtually

disintegrated into regional warlords, fighting for authority and

causing economic misery and contraction. After 1927, Chiang Kai-

shek managed to reunify China and bring in the Nanjing decade, a

period of relative prosperity despite civil war and Japanese

aggression. In 1937, theJapanese invaded and literally laid China

to waste in eight years of war. The era also saw the first boycott

of Japanese products. Afterwards, the Chinese civil war further

devastated China and led to the fall of the Republic in 1949.

Civil war, famine and turmoil in the earlyrepublic

The early republic was marked by frequent wars and factional

struggles. From 1911 to 1927, famine, war and change of

government was the norm in Chinese politics, with provinces

periodically declaring "independence". The collapse of central

authority caused the economic contraction that was in place since

Qing to speed up, and was only reversed when Chiang reunified

China in 1927 and proclaimed himself its leader.

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Development of domestic industriesChinese domestic industries developed rapidly after the downfall

of the Manchu Qing dynasty, despite turmoil in Chinese politics.

Development of these industries peaked during World War I,

which saw a great increase in demand for Chinese goods, which

benefitted China's industries. In addition, imports to China fell

drastically after total war broke out in Europe. For example,

China's textile industry had 482,192 needle machines in 1913,

while by 1918 (the end of the war) that number had gone up to

647,570. The number increased even faster to 1,248,282 by

1921. In addition, bread factories went up from 57 to 131.

The May 4th movement, in

which Chinese students called

China's population to boycott

foreign goods, also helped spur

development. Foreign imports

fell drastically from 19191921

and from 1925 to 1927.

Chinese industries continue to develop in the 1930s with the

advent of the Nanking decade in the 1930s, when Chiang Kai-

shek unified most of the country and brought political stability.

China's industries developed and grew from 1927 to 1931.

Though badly hit by the Great Depression from 1931 to 1935 and

Japan's occupation of Manchuria in 1931, industrial output

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recovered by 1936. By 1936, industrial output had recovered and

surpassed its previous peak in 1931 prior to the Great

Depression's effects on China. This is best shown by the trends in

Chinese GDP. In 1932, China's GDP peaked at 28.8 billion, before

falling to 21.3 billion by 1934 and recovering to 23.7 billion by

1935.

The rural economy of the Republic of ChinaThe rural economy retained much of the characteristics of the

Late Qing. While markets had been forming since

the Song and Ming dynasties, Chinese agriculture by the Republic

of China was almost completely geared towards producing cash

crops for foreign consumption, and was thus subject to the say of

the international markets. Key exports included glue, tea, silk,

sugar cane, tobacco, cotton, corn and peanuts.

The rural economy was hit hard by the Great Depression of the

1930s, in which an overproduction of agricultural goods lead to

massive falling prices for China as well as an increase in foreign

imports (as agricultural goods produced in western countries were

"dumped" in China). In 1931, imports of rice in China amounted to

21 million bushels compared with 12 million in 1928. Other goods

saw even more staggering increases. In 1932, 15 million bushels

of grain were imported compared with 900,000 in 1928. This

increased competition lead to a massive decline in Chinese

agricultural prices (which were cheaper) and thus the income of

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rural farmers. In 1932, agricultural prices were 41 percent of 1921

levels.Rural incomes had fallen to 57 percent of 1931 levels by

1934 in some areas

Foreign direct investment in the Republic ofChina

Foreign direct investment in China soared during the Republic of

China. Some 1.5 billion of investment was present in China by the

beginning of the 20th century, with Russia, The United Kingdomand Germany being the largest investors. However, with the

outbreak of WWI, investment from Germany and Russia stopped

while England and Japan took a leading role. By 1930, foreign

investment in China totalled 3.5 billion, with Japan leading (1.4

billion) and England at 1 billion. By 1948, however, the capital

stock had halted with investment dropping to only 3 billion, with

the US and Britain leading.

Currency of the Republic of ChinaThe currency of China was initially silver-backed, but the

nationalist government seized control of private banks in the

notorious banking coup of 1935 and replaced the currency with

the Fabi, a fiat currency issued by the ROC. Particular effort was

made by the ROC government to instill this currency as the

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In 1937, Japan invaded China and the resulting warfare literally

laid waste to China. Most of the prosperous east China coast was

occupied by the Japanese, who carried out various atrocities such

as the Rape of Nanjing in 1937 and random massacres of whole

villages. In one anti-guerilla sweep in 1942, the Japanese killed up

to 200,000 civilians in a month. The war was estimated to have

killed between 20 and 25 million Chinese, and destroyed literally

all that Chiang had built up in the preceding decade].

Development of industries was severely hampered after the war

by devastating conflict as well as the inflow of cheap Americangoods. By 1946, Chinese industries operated at 20% capacity and

had 25% of the output of pre-war China.

One effect of the war was a massive increase in government

control of industries. In 1936, government-owned industries were

only 15% of GDP. However, the ROC government took control of

many industries in order to fight the war. In 1938, the ROCestablished a commission for industries and mines to control and

supervise firms, as well as instilling price controls. By 1942, 70%

of the capital of Chinese industry were owned by the government.

Hyperinflation, civil war and the relocation ofthe republic to Taiwan

Following the war with Japan, Chiang acquired Taiwan from Japan

and renewed his struggle with the communists. However, the

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corruption of the KMT, as well as hyperinflation as a result of

trying to fight the civil war, resulted in mass unrest throughout

the Republic and sympathy for the communists. In addition, the

communists' promise to redistribute land gained them support

among the massive rural population. In 1949, the communists

captured Beijing and later Nanjing as well. The People's Republic

of China was proclaimed on 1 October 1949. The Republic of

China relocated to Taiwan where Japan had laid an educational

groundwork. Taiwan continued to prosper under the Republic of

China government and came to be known as one of the FourAsian Tigers due to its "economic miracle", and later became one

of the largest sources of investment in mainland China after the

PRC economy began its rapid growth following Deng's reforms.

PEOPLES REPUBLIC OF CHINA ( 1949ONWARDS )

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The People's Republic of China is marked by two distinctly

different periods: the Mao Era, characterized by a soviet-styleplanned economy that extinguished the market and eventually

became unresponsive, and the post-Mao Era, more properly

called the Deng Era (after the reformer who started it)

characterized by a transition to a relatively free market economy

which was one of the most prosperous periods in China's history.

Many Chinese are hopeful that this newfound prosperity will last

and China will reclaim her place at the top of nations.

The Mao Era (1949-1976)The Mao Era was marked by a soviet-style planned economy

which was instituted, despite his promises, in 1949-52. A decade

of relatively peaceful development and collectivization followed,

but in 1959 Mao launched the disastrous Great Leap forward, an

attempt to collectivize all aspects of life (even the peasants'

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cooking pots), a disaster that was exacerbated by famine.

Following this, a reformist faction led by Deng Xiaoping and Liu

Shaoqi forced Mao out of office and experimented with market

reforms such as giving peasants private plots. However, these

reform efforts were disrupted by Mao's Cultural Revolution, a

period of virtually total anarchy and street fighting that resulted

in the collapse of the Chinese economy and ended with the arrest

of theGang of Four.

Early policies of toleranceMao initially promised to work with "patriotic capitalists, the petit-

bourgeois and other classes" in a period of "New Democracy" in

which some capitalism would be allowed. However, in 1952 he

broke his promise and accused capitalists of sabotaging China's

war effort in Korea. Following this, businesses were collectivized.

Collectivization of industry and agricultureCollectivization of industry took place from 1951 to 1954, by

which time industry was entirely in state hands. Despite the

communist party's original plans not to finish collectivization of

agriculture until 1971, Mao pushed ahead with mutual aid teams

by 1953, and People's commune (by 1955, forcing the

collectivization of agriculture.

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Economic development in the 1950sWith Soviet aid, Mao set up a basic industrial base that included a

small set of industries, mostly related to military matters, that

was to become the basis of the later modernization by Deng

Xiaoping. New buildings, roads, railroads, and a basic

infrastructure was put in place to sustain Chinese development.

Illiteracy and a whole host of parasites were eradicated. For these

reasons, the 1950s is usually regarded aS THE HIGH POINT OF

THE MAO ERA.

Great Leap ForwardIn 1959, Mao launched a crash industrialization program under

the official title the Great Leap forward. This involved making

many peasants urban workers, collectivizing virtually everything

(including cooking tools) and setting up backyard furnaces to

improve steel production. However, the program was a disastrous

failure[19]. The new collectivization destroyed the incentive of the

peasants, and distorted priorities. Most of the new steel produced

from backyard furnaces was useless. The food system collapsed

and millionsestimated to have been as high as 45 millionpeople died, usually from starvation or vulnerability to disease

caused by severe malnutrition

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Attempts at reformReformists, such as Liu Shaoqi and Deng Xiaoping, began to push

for reform, after the disastrous Great Leap Forward. They undid

some of Mao's priorities, such as disbanding the People's

communes and giving peasants private plots. Mao was infuriated

and, in 1966, struck against the reformers, calling them Capitalist

roaders and launching the Cultural Revolution.

Cultural Revolution and collapse of the

economy

The Cultural Revolution party program is almost universally

assessed to bring about one of the most catastrophic periods ever

in China.[citation needed] Youth groups aligned with Mao, known as Red

Guards, deposed, brutalised and frequently executed city and

provincial government officials, and then took control themselves.

This began in Shanghai and quickly spread across the country. By

1966, most of the country was in the hands of revolutionary

committees which battled each other for power.

This disruption, as well as the purge of millions of intellectuals,

workers, and officials as counter-revolutionaries, had a severe

impact on the economy. Economic output fell some 30% over

three years, and stagnated for the rest of the period. In addition,

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an entire generation was deprived of education while China's

development was hampered for years to come. Referring to this

period, Deng Xiaoping said it had created "an entire GENERATION

OF MENTAL CRIPPLES".

Deng Xiaoping's riseAn old party stalwart, Deng had been of the reformist faction in

the early 1960s and purged in the Cultural Revolution. After Mao's

death, however, a coup overthrew the Gang of Four and instilled

old party officials such as Deng back in power. However, it was

not until 1978 that Hua Guofeng, Mao's appointed successor,

resigned and Deng took power, though he was never officially the

leader, instead holding the position of chairman of the Central

military commission.

FROM PLANNED ECONOMY TO FREEMARKET POWERHOUSE: THE POST-MAO

ERA (1976 ONWARDS)

While, in 1976, at the end of the Cultural Revolution, China's

planned economy was in ruins and its people barely surviving, the

country was to witness, in the next two years, one of the most

rapid periods of change in her 5,000-year history. Deng Xiaoping

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initiated free-market reforms that transformed China's

economy. Only 30 years later, China moved from being an

economically desolate country into an industrial powerhouse,

rapidly overtaking developed western nations in recession. The

agent of this dramatic change, Deng Xiaoping, is sometimes

known as "Deng Gong" (The Venerated Deng) for his

achievements.

De-collectivization of agricultureOne of Deng's first actions was to break up the People's

communes that Mao instated and grant a system of "Bao Chang

Dao Hu" in which each plot of land was given to each household

to farm. This system was successful enough to allow Deng in

1983 to lift limits on consumption of many agricultural goods that

were instated during the Mao Era due to scarcity. However, these

limits were not completely lifted until 1994.

Liberalization and privatization of businessPrivate businesses, which were banned in the Mao Era for being

"Capitalist exploiters, were reinstated in the Deng Era. Early on,

a citizen could opt to become "Ge Ti Hu or self-employed

household, and to set up a business instead of taking on state

jobs. These "Ge Ti Hu" quickly became extremely wealthy. In the

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1990s, many state enterprises were privatized and private

individuals were allowed to create companies. In 1990,

the Shanghai Stock Exchange was reopened

after Mao

first closed it 41 years earlier.

Another innovation instated during this period was the Chengbao

system or contracting system, in which state assets were given to

private operators, who gave the state the money needed forexpenses as well as a share of the profits. This system was also

rapidly adopted; in the 1980s and 1990s, many schools, hospitals

and even bus lines passed from the state to private operators.

However, this system was also criticized as many felt that the

change in operation for these schools and hospitals, now for-

profit, was detrimental to the poor. In addition, some private

contractors were accused of gaining their positions solely because

ofnepotism.

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Although privatizations had occurred in the 1980s, it was sped up

in the 1990s by Premier Zhu Rongji, who started a policy of

privatizing all state enterprises which were losing money. In 1997,

the CPC issued a verdict declaring that state-owned companies

were now "people-owned companies" who would be subject to

mergers and bankruptcy. Thousands of state companies were

privatized or partly floated on the stock exchange. In 1978, more

than 90% of GDP was produced in state enterprises, which, up to

1992, dominated China's economy. That figure, not accounting for

state assets that were contracted, had fallen to 30% by 2009.

Foreign investment and industrialization

In addition to internal liberalization, Deng also established aseries of "special economic zones" in which foreigners could

invest in China taking advantage of lower labor costs. This

investment helped the Chinese economy boom. In addition, the

Chinese government established a series of joint ventures with

foreign capital to establish companies in industries hitherto

unknown in China. By 2001, China became a member of

the World Trade Organization, which has boosted its overall trade

in exports/importsestimated at $851 billion in 2003by an

additional $170 billion a year.

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Despite a brief period in 1989 in which foreign capital withdrew

from China, China continued to be one of the biggest recipients of

foreign investment. In 2006, an estimated $699.5 billion of

foreign investment was present in China. A great deal of this

investment came from Chinese-speaking regions such as Hong

Kong andTaiwan, who were the first to invest in China. Japanese

and Western investment followed.

Deng's liberalization of the Chinese economy, along with foreign

investment, helped to power China's industrialization. From

virtually an industrial backwater in 1978, China is now the world's

biggest producer of concrete, steel, ships, textiles as well as the

world's biggest auto market. For example, from 2000 to 2006,

China's steel production rose from 140 million tons to 416 million

tons. From 1975 to 1992, China's auto production rose from

139,800 to 1.1 million automobiles before jumping to 9.35 million

in 2008.

Developments post-DengIn 1997, Deng Xiaoping died. However, his reformist policies were

continued by his successor,Jiang Zemin. The result was a vibrant,

growing economy.

Under Hu and Wen, who became leaders of China in 2003, the

Chinese government continued to give up grounds to private

enterprise, yet increased its control in other areas. The new

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premier, Wen Jiabao, reinstated some Mao-Era social systems,

such as social security, as well as sponsoring a new initiative

in health care in which the state retook control of hospitals from

many contractors who had run them for two decades. However,

this was reversed in 2009. Nevertheless, China's economy

continued to grow. In 2008, however, it was affected by the global

financial meltdown and the growth rate fell to 9.0%. As of 2008,

China's GDP (PPP) was between 50 and 60 percent of the GDP

(PPP) of the US, while over 10 percent of world GDP (PPP).

To offset the effects of the global economic crisis, the government

announced a financial stimulus of around 4 trillion yuan spread

over two years. However, new spending by the government was

actually only about 1 trillion yuan; the rest was already part of the

government's budget.[29]

In mid-2005, China began to experience an enormous property

bubble, largely caused by loose monetary policy under

premier Wen Jiabao. Property prices tripled from 2005 to 2009,

and are continuing to rise.

Some analysts also discovered a new management style in China.

The Chinese managers refrain from the American management

model, where short-dated success are more important than long-

dated strategies, and take more care of the environment, the

people and the culture of an area, where they do business.

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World's second largest economyIn July 2010,Yi Gang, Deputy Governor of the Bank of China,

claimed China's economy had overtakenJapan as the world's

second biggest economy by nominal GDP. This fact was

confirmed in February 2011, when the official economic statistics

was issued by Japan (Chinese statistics for 2010 was published

earlier), which showed that Japan's 2010 GDP was worth $5.474

trillion, when China's 2010 GDP was around $5.8 trillion.

BRIEF OVERVIEW OF PRESENT

ECONOMY OF CHINA

ECONOMY OF THE PEOPLES REPUBLIC OF CHINA

Rank 2nd

Currency Renminbi (RMB); Unit:Yuan (CNY)

Fiscal year Calendar year 01 January to 31 December

Trade

organizationsWTO, APEC, G-20 and others

STATICS

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GDP growth 10.46% (major economies: 1st; 2010)

GDP per capita $4,283 (nominal: 95th; 2010)

$7,518 (PPP: 93rd; 2010)

GDP by sector

industry (46.8%), services (43.6%), agriculture (9.6%)

(2010 est.)

Inflation (CPI)4.9% (January 2011)[2]

Labour force

780 million (1st; 2010)

Labour force

by occupation

agriculture (39.5%), industry (27.2%), services (33.2%

(2008)

Unemployment4.2% (July 2010)

Main

industries mining and ore processing, iron, steel, aluminum, and

other metals, coal; machine building; armaments;

textiles and apparel; petroleum; cement; chemicals;

fertilizers; consumer products, including footwear, toy

and electronics; food processing; transportation

equipment, including automobiles, rail cars andlocomotives, ships, and aircraft; telecommunications

equipment, commercial space launch vehicles, satellit

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Business Rank79th (2011)

EXTERNAL

Exports

US$1.506 trillion (2010)

US$1.506 trillion (2010)

Export goods

electrical and other machinery, including data process

equipment, apparel, textiles, iron and steel, optical an

medical equipment

Main export partners US 20.03%, Hong Kong 12.03%, Japan 8.32%

South Korea 4.55%,

Germany 4.27% (2009)

ImportsUS$1.307 trillion (2010)

Import goods

electrical and other machinery, oil and mineral fuels,

optical and medical equipment, metal ores, plastics,

organic chemicals

Main import

partners

Japan 12.27%, Hong Kong 10.06%, South Korea 9.04%

US 7.66%, Taiwan 6.84%, Germany 5.54% (2009)

FDI stock$100 billion (2010)

Gross external

debt

$406.6 billion (22nd; 2010)

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PUBLIC

FINANCES

Public debt17.5% of GDP (112th; 2010)

Revenues $1.149 trillion (2010)

Expenses $1.27 trillion (2010)

The People's Republic of China is the world's second largest

economy after the United States. It is the world's fastest-growing

major economy, with average growth rates of 10% for the past 30

years. China is also the largest exporter and second

largest importer of goods in the world. China became the world's

top manufacturer in 2011, surpassing the United States. The

country's per capita GDP (PPP) is $7,518 (IMF, 93rd in the world)

in 2010. The provinces in the coastal regions of China[7] tend to be

more industrialized, while regions in the hinterland are

less developed. As China's economic importance has grown, so

has attention to the structure and health of that economy.

C HINA AS WORLDS SECOND

LARGEST ECONOMY

China has become the world's second largest economy, withJapan surrendering its 42-year-old ranking after its economy

shrank in the final months of 2010.

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China has claimed since as early as 2008 that it either was, or

was imminently poised to become, the worlds second-largest

economy.

Until now, Japanese economists have patriotically refuted the

Chinese figures. However, weak consumer spending and a strong

yen saw Japans gross domestic product (GDP) fall by an

annualised rate of 1.1pc in the final quarter.

That allowed China to pull ahead with a GDP total of $5.88 trillion

(3.68 trillion) for 2010, on a non-adjusted nominal dollar basis,

compared to $5.47 trillion for Japan.

Table showing top economies of the world:

COUNTRI

ES

RAN

K

APPROX. GDP-

PPP( IN TRILLION)

CONTRIBUTI

ON OF

INDUSTRIAL

SECTOR IN

GDP

CONTRIBUTI

ON OF

AGRICULTUR

E SECTOR IN

GDP

U.S.A. 1 $14.6 22.2% 1.2%

CHINA 2 $10.08 46.8% 9.6%

JAPAN 3 $4.30 23% 1.1%

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INDIA 4 $4.001 28.6% 16.1%

GERMANY 5 $2.93 27.9% 0.8%

RUSSIA 6 $2.21 33.8% 4.2%

BRAZIL 7 $2.18(2,181,680,0

00,000)

26.4% 6.1%

U.K. 8 $2.18(2,181,010,0

00,000)

22.1% 0.9%

FRANCE 9 $2.14 19.2% 1.8%

ITALY 10 $1.77 24.9% 1.8%

By comparison, the United States recorded GDP of $14 trillion in

2009, but experts have predicted that after sweeping past

Germany, France, the UK and now Japan, China will catch up with

the US by as early as 2030.

Similar predictions were made for Japans prospects during the

1980s. However, after more than a decade, being overtaken by

China reflects Japans declining political and economic power.

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GRAPHICAL REPRESENTATION OF

CHINAS ECONOMIC GROWTH

Chinas GDP growth rate over the years:

(1980-2010)

Year Gross domestic product,

constant prices

198

0

7.91

198

1

5.2

198

2

9.1

198

3

10.9

198

4

15.2

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198

5

13.5

198

6

8.8

198

7

11.6

198

8

11.3

198

9

4.1

199

0

3.795

199

1

9.21

199

2

14.195

199

3

14.003

199 13.099

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4

199

5

10.9

199

6

10

199

7

9.3

199

8

7.801

199

9

7.599

2000

8.399

200

1

8.292

200

2

9.101

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200

3

10.101

200

4

10.091

200

5

11.29

200

6

12.692

200

7

14.191

200

8

9.595

200

9

9.096

201

0

10.456

COMPARISON WITH U.S. & JAPANS

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CHINA

Population 1.33bn

Life expectancy 74

Literacy 91.6pc

GDP $5.88 trillion

GDP growth rate 10.3pc

GDP per capita $4,410

Labour force 819.5m

Unemployment rate 4.2pc

Inflation rate 5.1pc

Current account balance $180bn

Exports $1.58 trillion

Imports $1.4 trillion

JAPAN

Population 127m

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Life expectancy 82

Literacy 99pc

GDP $5.47 trillion



Labour force 65.6m


Inflation rate -0.9pc* [2010 estimate]

Current account balance $204bn

Exports $766.6bn

Imports $562.6bn

UNITED STATES

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Population 310m

Life expectancy 78

Literacy 99pc

GDP: $5.88 trillion $14.7 trillion



Labour force 153.9m


Inflation rate 1.1pc

Current account balance -$561bn (negative)

Exports $1.27 trillion

Imports $1.9 trillion

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R EASONS OF CHINAS ECONOMIC

GROWT H

Starting in 1978, Deng Xiaoping's reforms opened the Chinese

economy and were the major causes of China's economic

growth.In 1978, Deng Xiaoping introduced began a series of

reforms known as gaige kaifang, or reform and opening up.

These were intended to jumpstart Chinas economy and caused

rapid economic growth in China. Major causes of Chinas economy

growth included the end of the commune system in farming,

expansion of private business ownership and increased foreign

investment in China.

End of the Commune System in ChinaThe late 70s and early 80s saw the break up of the Mao-era

communal farming system; this was one of the major causes ofChinas economic growth in the reform era. During the Mao era,

farms were organized into communes of workers that were

obligated to give excess production to the state.

When Deng Xiaopings reforms hit, communes were reverted into

traditional family style farms. This was a major step forward for

Chinas economic growth because it created incentive for farmersto produce more. This excess created higher incomes and allowed

rural residents to engage in small-scale rural enterprise.

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Private Business Ownership in ChinaOne of the primary causes of Chinas economic growth was the

loosening of restrictions on private businesses. Private enterprises

began to sprout up, especially in the 1990s. These private

enterprises quickly outperformed Chinas state-owned enterprises

(SOEs). SOEs were not immediately dismantled, but they

performed poorly compared to new private enterprises. Private

companies were driven by a profit motive, rather than a political

one, and were highly efficient compared to the aging SOEs.

Foreign Investment During the Deng Xiaoping-era

The end of the commune system in the 1980s and expansion of

private business ownership in China were important causes of

Chinas economic growth since 1978. However these were greatly

aided by a huge influx of foreign investment during the Deng

Xiaoping-era. Deng Xiaoping opened the door to foreign

investment starting in the late 70s.

Foreign investment created badly needed infrastructure in the

form of facilities like factories and other production centers. This

also meant jobs and rising incomes for huge numbers of Chinese

people. Furthermore, foreign investment created opportunities for

transfers of technology as well as increased exports. From 1981

to 1994, for example, exports rose 19 percent per year.

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From 1978, China embarked on a plan of economically liberal

reforms. Deng Xiaoping's reforms included the end of the

commune system, expansion of private business ownership and

increased foreign investment. These all proved to be important

causes of Chinas economic growth. This created the huge growth

rates and rise in GDP in China that continue today.

Other Reasons

What is the most important reason why there is an improvement

in the economic growth in the chinese out of the followingpolicies. is it Government policy, education, investment from

overseas, cheap labour or natural resources.

1. Cheap Labour

China has a large unskilled workforce willing to work for low

wages. In the north many farmers struggle to make an income,

therefore, they are willing to move south and work in

manufacturing for low wages. Therefore, despite high growth,

wages have remained low. This has meant Chinese exports have

continued to be very competitive. Exports to the rest of the world

are one of the main factors behind increased AD and Chinas.

Cheap labour has also helped avoid wage inflation, which could

destablise economic growth.

2. Government Policy

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The Chinese government have been keen to promote economic

growth (they have been concerned about unemployment from

privatised industries and agriculture). Therefore, they have kept

the Yuan undervalued. This makes Chinese exports more

competitive and has helped the exporting sector. The government

have also kept interest rates relatively low. Although, it is

sometimes difficult for small business to get loans. Low interest

rates have also encouraged some irresponsible lending. Arguably

the government have contributed to a boom and there is a

danger that the government have allowed growth to be too high.This could lead to inflation and a downturn in the future.

3. Raw Materials.

China has good reserves of raw materials such as coal. However,

for many raw materials they are net importers. This is true,

particularly, for metals, oil and precious commodities. In fact

demand from China is one of the main reasons behind the boom

in commodity prices. Therefore, we could say China has

experienced growth, despite having to import so many raw

materials. The increasing price of oil and metals may be a

constraint on future growth.

4. Investment from Overseas.

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This increases productive capacity and helps improve

technological development. However, as a % of GDP investment

from overseas is relatively low.

5. Education

At the moment, Chinas comparative advantage lies in unskilled

labour intensive industries. However, there is a growing,

educated, middle class, which has enable the economy to

diversify out of manufacturing. Education will be of increasing

importance as China tries to provide greater value added to its

industries.

Other factors influencing growth may include:

Domestic Demand

Privatisation. Selling state owned assets to the private sector

has enabled big efficiency savings.

Consumer Demand in US

FORECAST ABOUT CHINAS ECONOMY

AN IMF REPORT

IMF bombshell: Age of America nears end

Commentary: Chinas economy will surpass the U.S. in 2016

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For the first time, the international organization has set a date for

the moment when the Age of America will end and the U.S.

economy will be overtaken by that of China. IMF sees China

topping U.S. in 2016. According to the latest IMF official forecasts,

China's economy will surpass that of America in real terms in

2016 just five years from now. According to the latest IMF

official forecasts, Chinas economy will surpass that of America in

real terms in 2016 just five years from now. It raises enormous

questions about what the international security system is going to

look like in just a handful of years.

According to the IMF forecast, ago, whoever is elected U.S.

president next year Obama? Mitt Romney? Donald Trump?

will be the last to preside over the worlds largest economy.

Chinas economy will be the worlds largest within five years or

so.Under PPP, the Chinese economy will expand from $11.2

trillion this year to $19 trillion in 2016. Meanwhile the size of the

U.S. economy will rise from $15.2 trillion to $18.8 trillion. That

would take Americas share of the world output down to 17.7%,

the lowest in modern times. Chinas would reach 18%, and rising.

Just 10 years ago, the U.S. economy was three times the size of

Chinas.

Other forecasts:

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By 2020 there will be a major shift in the global balance of

economic power compared to 2010. Euromonitor International

assesses the shift and its implications.

Emerging economies will rise in importance and China will have

overtaken the USA to lead the list of the world's top ten largest

economies by GDP measured in PPP terms. Although in terms of

major appliances the average unit price in China is forecast to

grow to US$250, however this is still 250% less than the forecast

for the USA. Volume and value gains will be sought through both

emerging markets and developed markets over the long term,

although it is clear over the medium term value is still going to be

driven in developed North American and Western European

markets.

Consumer markets, including appliances and electronics, in

emerging economies will present enormous opportunities but

their rapid growth also poses a challenge to the global

environment.

Key points :

The top ten largest economies in 2010 in terms of total GDP

measured at purchasing power parity (PPP) are the USA, China,

Japan, India, Germany, Russia, the United Kingdom (UK),

France, Brazil and Italy. PPP is a method of measuring the

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relative purchasing power of different countries' currencies over

the same types of goods and services, thus allowing a more

accurate comparison of living standards;

Six out of the ten biggest economies in 2010 are advanced

countries. With GDP measured at PPP terms accounting for

20.2% of the world total, the USA is the world's largest

economy in 2010;

In 2010, China ranks as the second largest economy in the

world, with GDP making up 13.3% of the world total in PPP

terms. Other emerging economies in the top ten biggest

economies in 2010 are India, Russia and Brazil. Emerging

countries have fared better than advanced economies overall

during the global economic recession;

By 2020, there will be major shifts in the world economic order

in which emerging economies will become more important.

China will overtake the USA to become the largest world

economy in 2017 and there will be more emerging economies

in the top ten economies by 2020 and beyond;

The rise in importance of emerging economies will have

implications for global consumption, investment and the

environment. Large consumer markets in emerging economies

will present enormous opportunities for businesses. However,

income per capita will remain higher in the advanced world.

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Since the 1990s, advanced economies have experienced much

slower growth compared to the developing world due to the rapid

rise of emerging economies including China and India. The

declining trend of advanced economies has been accelerated by

the global financial crisis in 2008-2009:

The USA is the world's largest economy. However, its share in

world GDP in PPP terms has declined from 23.7% in 2000 to

20.2% in 2010 due to faster growth of emerging economies as

well as the severe impact of the financial crisis in 2008-2009.

Real GDP contracted by 2.4% in the USA in 2009. The economy

has recovered since early 2010 owing to stimulus measures;

Japan's economy recovered slightly in the mid-2000s after a

prolonged period of stagnation due to inefficient investments

and the burst of asset price bubbles. The country has been hit

hard by the global economic downturn since 2008 as a result of

its over dependence on trade and prolonged deflation.

Population ageing has also accelerated Japan's economic

slowdown. In 2009, annual real GDP shrank by 5.2%;

In 2010, the European Union (EU) economies account for 20.6%

of world GDP measured at PPP terms, down from 25.1% in

2000. Population ageing and rising unemployment have

contributed to their slowdown;

The IMF forecasts that annual real GDP growth of advanced

economies will reach 2.3% in 2010 and 2.4% in 2011 after a

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contraction of 3.2% in 2009. This is much slower than the 8.7%

expected in emerging Asian economies for both 2010 and 2011,

which are driving the global economic recovery. Many

advanced economies will also face the challenge of reducing

public debts and government budget deficits, which will weigh

on economic growth potential into the medium term.

Emerging countries are catching up and will

overtake :

Emerging economies are catching up with the advanced world. By

2020, there will be changes in the global balance of economic

power:

China's share in world total GDP in PPP terms has increased

from 7.1% in 2000 to 13.3% in 2010. By 2020, it will reach

20.7%. China will overtake the USA to become the world's

largest economy as early as 2017;

India is the fourth largest economy in 2010. By 2012, it will

have overtaken Japan to become the world's third largest

economy, with GDP accounting for 5.8% of the world total in

PPP terms. In the long term, India could grow even faster than

China due to its younger and faster growing population;

By 2020, Russia will rank higher than Germany in the top ten

economies in terms of GDP measured at PPP terms and become

the fifth largest economy. Brazil, on the other hand, will have

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overtaken both the UK and France to become the seventh

largest economy in 2020. Being amongst the world's major

exporters of energy and natural resources, Russian and

Brazilian growth potential is promising although Russia's lack of

economic diversification may cause problems in the longer

term;

By 2020, Mexico will have overtaken Italy to be the world's 10th

largest economy by GDP measured at PPP terms. A growing

population and proximity to the USA aid the country's economic

development;

With five emerging countries in the list of top ten largest

economies, global power will become more balanced by 2020.

CONCLUSION

. China has experienced a remarkable period of rapid growth

spanning three decades, shifting from a centrally planned to a

market based economy with reforms begun in 1978. During this

time, it grew at an average rate of about 9.7% per year, with

exceptionally strong growth between 2003-2007 averaging about11% per year. Growth remained strong during the recent global

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financial crisis, reflecting massive stimulus and strong underlying

growth drivers.

China became the worlds second largest economy in 2010;

increasingly, it is playing an important and influential role in the

global economy. and most analysts predict China will become the

largest economic power in the world this century.

Rise of China as an Economic Power

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