Economic Report on China

2744 words (11 pages) Essay in Economics

08/02/20 Economics Reference this

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Economic Report on China

Key Findings

The paper had some great insights about China. Some of the key findings are that China’s GDP has been increasing in 2018 and it will continue to do so in the coming years. As far as the GDP global ranking is concerned China ranks at number 2. The Gini coefficient highlights the issue of poverty that China faces. The top industries China is operating in are locomotive, electronics, machinery and textile. China has a very strong trade, every year it is involved with trillions of worth of goods being imported and exported, however all is not that great, China faces a problem of both corporate and household debt and it has to take actions to curb it before it turns into an economic crisis. There are about 8 political parties in China and they follow a communist style of governing. US is China’s top trading partner and they have a bilateral trade worth of billions of US dollars. China is a very attractive country for direct foreign investment and many countries are investors in China.

Executive Summary

This paper talks about China as a country, what its economy looks like, size wise, its GDP, GDP per capita, its global ranking. What kind of industries does China have. How have been the economic development post the World War II and how is the current economic situation. Then it focuses on the political aspect of China, what parties do they have, what is the system of government, what is the current government like. In goes on to describe the relationship China has with the world economy, who its trading partners are, what are the top exports, imports, who has signed FTA with china and so forth.

Introduction

The paper is an in-depth analysis of China. It covers basic aspects of the country and build it up to larger aspects. It really does give an understanding of the country and what it has been through since its inception. Many aspects are being covered here from economy to politics to international relations, all of these have been discussed with detail which really gives a 360 view of the country. From its early times post World War II till now, it gives a snap shot into what the country has been through and what it is going towards. The paper does not look at China in isolation, its relationship with other countries have been discussed, its economic relationship with the US has also been touched upon.

Overview of the Economy

GDP

In the 4th quarter of 2018, the GDP of China grew at the rate of 1.6% to about $13 trillion. On a year basis, the GDP grew at the rate of 6.5%. China’s GDP has been on an increase over the years and in the coming years it is expected to be on the increasing trend as well.

GDP per Capita

In 2017, the Gross Domestic Product per capita for China has been recorded at US $7329.09. It has been estimated that China’s per capita is equal to about 58% of the world’s average. The trend shows that this is an all time high for China, the all-time low GDP per capita has been recorded at US $132 in 1962.

Global Ranking (both Nominal and PPP)

China ranks at number 2 on the global ranking, it has nominal GDP of $12.01 trillion and GDP (PPP) of $23.15 trillion. USA ranks number 1. China’s economy has been growing at an exponential rate since it is considered as the world’s factory for its manufacturing and exporting facilities.

Gini Coefficient

The Gini Coefficient of China is above 0.4 for years and it is defined as a number by the UN habitat as the international alert line. Chinese government is working really hard for the elimination of poverty in the country and have set a goal for themselves to completely eliminate poverty by 2020.

Top Industries/Sectors

When China came into being, it was primarily an agriculture country but soon it became an industrial one, China had the objective of converting from agriculture to industrialism. There are multiple industries that operate in China like locomotive industry, planes and computers. China has become the largest producer of inexpensive cotton textile that are exported all over the world. China is also a leading producer of cement in the world. China has become an industrialized country and the auto industry has played a huge role with that.

Post World War II Economic Development

After the war, Mao wanted to develop China economically and had a five-year plan. He was determined to bring tangible results to China. He had plans to beat the US and UK as far as economics was concerned. He made a plan called the great leap forward, according to the plan, the land in the country will be under the state and will be used for agriculture mostly, increasing manufacturing was also part of the plan (S, 2018)

Current Economic Environment

The current economic development of China shows consistent growth, the GDP is increasing with every passing year, consumption as well as investment continues to grow and flourish. China’s trade has also been strong, it has been having trade surpluses since the 1993s and looks like there is no stopping to that. China’s export consists mainly of electronics about 55%, garment is around 13%, export has been mainly to Asia, North America and Europe (China Economic Outlook, 2018). Current economic condition of China is quite favorable and looks like its going to have a bright future.

Major Economic Risks

One of the major economic risk China is facing is that it has a growing debt both corporate as well as household. Its debt so far is about US $ 4.3 trillion about 41% of its GDP. China has created billions of dollars’ worth of loans (Guy, 2018). The issue of debt is so severe that even IMF has warned China about it and has forecasted a financial crisis if nothing is done about it.

Overview of the Political Situation

Type of Government

China is ruled by the communist party since 1949, they have a complete political power and rule the country according to the democratic laws. The legislative branch of the government is the National people’s congress that is involved with policy making and implementing. There is an executive branch of the government as well that consists of State council, premier and the president. Then there is judicial as well as military branches of the government (Pariona, 2017).

Major Political Parties

In China there are 8 other political parties that are at play, the biggest one is CPC after that is the China Democratic League that was founded in 1941. After that comes the China National Democratic Construction Association which was basically formed by business people of China. Then there is Jiusen Party that has about 164,000 members. Then there is the China Zhi Gong Party which was in fact founded in US. Then there is Taiwan Democratic self-government league which has the least numbers of member about 3000. There is also the Revolutionary Committee of the Chinese Kuomintang (RCCK) that wanted to modernize China (What are the other political parties in China?, 2017).

Governments since WWII

In 1949 Chinese leader Mao Zadong declared the establishment of People’s republic China, which followed with a civil war between the Chinese Communist Party and the Nationalist party. This occurred immediately after the World War II. In 1945, the leaders of Nationalist and Communist party met and decided that democracy should be the way forward. The civil war then broke out and it was the communist party that took the lead because the Nationalist Party was thought of as corrupt and mismanaged and failed to gain the support of the people.

Current Government

Currently the Chinese Communist Party is the leading political party in China. CCP is very organized and maintains control of the society. The party is responsible for policy making and getting it implemented through government officials who are members of the party. There is a central committee who controls the direction of CCP, this committee consists of 200 members, which are elected with the help of the congress. The chief of thr state is the president Jiang Zamin who has been the president since 1993, the national Party congress elect the president and the vice president for 5-year term.

Major Political Risks

There are number of political risks that China is facing, the first being trade and currency disputes. China has been in conflict with the US and Europe which could be bad news for the investors in China and the capital markets. There is also a lot of international pressure to allow yuan to appreciate. Apart from that, China is facing threats from Google that they will pull out if the matters of censorship are not dealt with (Buckley, 2018). There is also risk of social stability in China, although the political party had it under control, but sparks of unrest could unfold.

Overview of how it is Connected to the Global Economy

Top Trading Partners

China has multiple trading partners, US being at the top of that list. In 2017, the total bilateral trade value was US $590 billion. The value of US imports from China is US $ 466 billion while value of US exports to China is US $123 billion (Johston, 2015). The second top trading partner is Hong Kong, the value of their bilateral trade is about US $ 268 billion (Johston, 2015). The third largest trading partner of China is Japan, the total value of its bilateral trade is about US $ 306 billion (Johston, 2015). China has been in trading relationship with these countries, these are the top three, there are many others that enjoy mutual benefits with China.

Top Exports

There are many items of various kinds that are exported by China to different countries, every country has a specific requirement that they want from their trading partners. To US China exports electrical and electronic equipment, machinery, nuclear reactors, refabricated buildings, furniture, lighting, signs. In addition to exporting electrical and electronic equipment to Hong Kong, China also exports metal coins, pearls and precious stones. China exports electrical and electronic equipment to Japan in addition it exports apparels, accessories and knit wear (Johston, 2015). The top exports remain electrical and electronic equipment, nuclear reactors and machinery. China’s top exports obviously go to its top three trading partners.

Top Imports

Just like the top exports go to top trading partners of China, similarly the top imports come from the leading trade partners as well. From the US, China imports oil, grains, fruits, seeds, vehicles, railway and trams. From Hong Kong, China imports machinery, boiler and machinery. From Japan, China imports, boilers, vehicles and railways (Johston, 2015).

Foreign Direct Investment – Inflows and Outflows

According to a report that published this year, China ranks at number 2 after US and before Hong Kong as a country that receives the highest foreign direct investment. China particularly became the hot country for investment in 2016 till now, it is especially attractive for multinational companies. The factors that make China so attractive are the development of technology sector, the free trade zones and their liberalization plans. The government of China have made the process easier for the foreigners to invest in their country.

Top Sources of Investment

In 2017, Hong Kong was the largest investor followed by Singapore, Taiwan, South Korea, Japan and the United States. Investment centered around business services, manufacturing, trade, technologies and real estate.

Current Account Situation

Recently China’s current account fell from 8% of China’s GDP to about 1.5% of the GDP. The current account was noted to be in the negative in the early quarters of 2018. This caused a lot of speculation and many analysts believed that in 2018, China will experience a current account deficit. However, it is necessary to note before jumping to conclusions that China’s current account has never be correctly measured. Secondly the current account is no longer the right measure to gauge the impact of China with its trading partners and manufacturers around the globe (Setser, 2018).

Free Trade Agreements? With Who?

Free Trade Agreements are signed between countries to extent their cooperation for trade, there are limited trade restrictions and barriers as a result of this agreement. China has about 14 free trade agreements with its trading partners and investors and is also involved with bringing eight more countries on board for the agreement. China’s FTA partners are Singapore, Pakistan, Chile, Peru, New Zealand, Hong Kong, Taiwan, Korea, Australia, Costa Rica, Iceland, Switzerland, Macao.

U.S. Economic Ties

US and China enjoy a very mutually beneficial relationship. The trade between the two countries support about 2.6 million people by providing them with jobs in the US across multiple industries, this includes the jobs that have been created by the Chinese companies in the US. The US sees a very lucrative customer base with the Chinese consumer and there are huge opportunities that it can take advantage of. The US is the largest trading partner that China has and they enjoy a bilateral trading relationship of billions of dollars. The trade not just involved products but there is a service trade going on between the two countries.

Industries/Sectors of the Future

Best Prospects

China has been involved with many sectors and has been in multiple industries in fact it is the leader in most of the industries. In the future however, China should focus on different industries. Information technology is one such sector where China should excel, especially when Beijing has shown interest to become a cyber power. Robotics is another area, China should explore, it is already good at electronics and machinery it might as well try its luck in robotics. Aerospace equipment is another area China should excel, they want o become the leader in satellite technology and there is no reason they cannot be.

Conclusion

China is a country that has been built with a lot of passion, it has seen its fair share of ups and downs but have pulled through beautifully. It has seen wars, political unrest, revolutions and what not and stood strong. Over the years they have become a force to reckon with. Their economy is booming and is predicted to do well in the future as well. They do have exciting plans for their country and its people. It enjoys good relationship with most of the countries around the globe, which is greatly beneficial for them.

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