Brief Overview on Chinese Economy

BACKGROUND

Chinese government had been responsible for planning and managing national economy since 1949, china maintained policies which kept economy very poor, sluggish, centrally controlled, vastly ineffective and relatively isolated from the global economy. Since opening up of the foreign trade and investment and implementing free market reform in 1978 china introduce capital market principles and became market based economy which began to show faster economic development. China became largest manufacturing economy in the world and second largest socialist market economy by GDP and purchase power parity and It was the world’s fastest growing major economy with average growth rate of 10%. During this period Chinese economy grew by 48 times in 1981 .The economy of China was the fastest growing consumer market in the world.

Chinese economy

china-economyChinese economy is decentralized collection of several economies with large imbalance in rural and urban population. The 3 most important economic regions are on the coast: Pearl River Delta near Hongkong, The Yangtze River Delta, near Shanghai and Bohai bay region near Beijing. There is a significant effect on Asian regional economy because of the continues and rapid development in these areas, and Chinese government designed policy to remove all the obstacles affecting the growth of these areas.

China economic structure

The economy of C

hina has undergone spectacular and continues structural change. Even after increase in agriculture productivity, shares of agriculture has decline as the manufacture and service sector has grown much faster. Labor shift among sectors have been phenomenal, Excessive labor has been absorbed by non agriculture sector. In 1997 less than half of the labor force were engaged in agriculture activities as compared to 1952. In 1978, agriculture accounted for 20%, urban industry accounted for 38% , service sector accounted for 33% and rural enterprises accounted 6% of total capital stock while in 1997 share of agriculture in total capital stock decline drastically by 8.8%, and urban industry and service have increased by 44.5% and 38.7% respectively, and shares of rural enterprise in total capital stock has grown by 13%.  Due to institutional reform and industrialization, China economy has experienced massive structural change.  The rapid transformation shows that there has been a huge variation in productivity growth among sectors.

CHINA’S POPULATION

China became the second largest economy with a population of 1.3 billion and is increasingly playing an influential and important role in global economy. Chinese population is largest in the world with the world’s largest labour force of 795.4 million, still china is a developing country and its market reforms are incomplete. According to statistics about 98.99 million people still lived below poverty lineat the end of the 2012.

China’s unemployment rate was 4.1 percent and china has maintained this rate of 4 to 4.3 % over the last ten years. China might face a dwindling pool of young workers because of its notorious policy of One Child and the proportion of Chinese over 60 yrs in the total population will increase from current 11% to 28% by 2040 and labour pool  also shrank by 3.45 million in 2012.

Chinese trade- import and export

China is second largest trading nation in world after US leading the world in export and second for import. Its trade to GDP ratio and trade per capita was 53.1% and 2,413$ respectively in 2009-2011. When china went into agreement with WTO in 2001, china share doubled in global trade, accounting 10.38% of and 9.43% of the world merchandise export and import respectively.

China is becoming the mutual trade partner for many countries around the world. China in 2011 was the largest exporting partner for 32 countries and importing partners for 34 countries. Because of the large trade imbalance between china and rest of the world, US in particular has largest trade deficit in the world.

Challenges facing the Chinese economy in 2014

China’s economy has revealed outstanding growth over the past several years, and it will enjoy fairly healthy growth in the coming future. But likely to occur only if China is continue to make major reforms to its economy. Failure to execute such reforms could endanger its future growth.

In 2014, China’s economy will face number of challenges, which may trigger bankruptcies among private organizations. China’s current economic model has resulted in a number of negative economic (and social) outcomes, such as over-reliance on fixed investment and exporting for its economic growth, extensive inefficiencies that exist in many sectors, and growing income inequality. Economic slowdown which is in a state of recession and how to balance this is a big challenge for Chinese economy, another challenge is conflict between population growth and week agriculture sector China’s population will increase to 1.4 billion in 2020. And demand for food and agricultural products will also increase, and the foundation to support the requirement of population is very weak. China is facing money shortage and soaring of local debt and how to manage debt risk during the progress of medium and small-scale city construction projects are again a big problem in front of Chinese economy. Conflict between manufacturing overcapacity and the demand for more jobs is again a problem faced by Chinese economy. The overcapacity problem for low-grade steel, aluminum, cement, flat glass, and shipbuilding is getting worse and when these outdated industries are phased out, it reduces the view point for job growth. This is a big problem as 2014 may see that large number of university graduates will be looking for jobs.

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