This paper examines the macro and micro economic aspects of pursing a new investment strategy in China focused on the selling of our heavy machinery to China. It will detail the high growth potential of this investment while balancing the associated risks inherent in this proposal. It will detail the fundamentals that compel us to pursue markets in the PRC and speak to China’s overwhelming comparative advantages when measured against the rest of the world and particularly other developing nations which also offer greater rates of return. In the past we have utilized China’s currency rates, use of VAT, and lower wages to export cheaper components for our manufacturing. This paper will endorse a change from exporting to importing to …show more content…
The Chinese government estimated that 20 million migrant workers had lost their jobs in 2008 because of the global economic crisis. The Shanghai Stock Exchange lost nearly two-thirds of its value from the end of 2007 to end of 2008. Below, the chart provides a visual impact of the global crisis on Chinese imports and exports: These outcomes would have and have pushed some countries to the brink of default. Unlike the Irish and Spaniards, the Chinese GDP Growth has not been spurred by the housing market bubbles and overconsumption that have placed in dire straits. The Chinese have been savers so; when the exports severely declined they embarked on a historic stimulus program that totaled $586 billion. The package was used to finance public transport infrastructure such as railways, highways, and ports and private infrastructure including affordable housing, irrigation for farming, electricity production, technological innovation and education. Despite the setbacks levied by the financial crisis, China’s economy offers very positive short and long term growth prospects. The WEO database has China’s GDP growth forecast pegged at 9.5% for every year from 2012 to 2016. With an average growth rate of 11.2% over the last five years, this forecast represents the IMF’s belief that
It is this that has sparked China’s vulnerability to external shocks. In 2011, China’s exports amassed almost $2 trillion, however in Feb 2012, China recorded a $31.5 billion trade deficit as a result of the European sovereign debt crisis in which China’s main trading partners plunged into recession. China’s severe BOGS decrease is an attempt to control growth and a sustained level of 7.5%. Investment policies are also critical for China to achieve economic growth and development. Foreign Direct Investment (FDI) in China is being sought primarily in the redesign of State Owned Enterprises (SOE’s) and in the development of interior provinces. Between 75-80% of World Bank loans to China in 2008 were directed to the central and western regions, the most economically disadvantaged. This promotes increased wealth within China, leading to higher levels of development due to a more positive Human Development Index (HDI), which currently sits at 0.687, up from 0.677 in 2010. Thus, trade and investment are critical factors in ensuring that China’s growth remains sustained at 7.5% whilst still encouraging increases in development.
The purpose of this research report is to provide an overview of China’s economic growth in relation to the long term economic growth drivers. Critical assessment will be made on the growth drivers to determine whether they lead to long term economic growth.
2008 financial crisis caused severe trauma on the world economy, although the economy of China grew moderately, China 's financial system is very fragile, the financial laws and regulations are deficient, the structure of foreign change reserve is very risky, because China has huge foreign exchange reserve of US dollar, which makes China also suffer from the financial crisis. Financial crisis is caused by the American subprime mortgage, to combat the financial crisis, the United States issued a substantial amount of U.S. dollars, which makes the U.S. dollar depreciate continuously, and this action makes many countries that have great amount of foreign exchange reserves in U.S. dollars suffer huge losses. China has the largest foreign exchange reserves in the world, in 2008, China’s foreign exchange reserves had reached $ 2 trillion, the continues devaluation of the U.S. dollar make China suffered a lot, thus the international capital system based on U.S. dollars has been questioned, China and other countries that also hold a huge amount of U.S. dollars started to build a new international capital structure. In 2011, China, Japan
Nowadays, China has become the second largest economy in the world. The GDP (gross domestic product) of china was growing at 9.7% per year in average since 1978, which the year of Chinese “open door” politic founded. China also has become the biggest producer and consumer in many key agricultural and industrial markets and the largest FDI recipient among the developing countries. The performance of china in developing of economy is called “china’s economic miracle”, which be studied by many economists. However, there are also bad results with the development of economy in china such as environment disruption, corruption and
China has reached a milestone in terms of achieving its centenarian goal of making China a prosperous nation once again. One of the ways that it has done this is by having steady economic growth even in the midst of an economic crisis. Not only has China’s economy grown, but its standard of living has also improved, it has achieved this by spending 70 percent of its fiscal revenue towards improving people’s standard of living. China has also pushed more anti-corruption reforms and has made efforts towards widening its economy by setting up freer trade.
The U.S has gone through a major economic struggle and is still fighting for stability. It is, also, undergoing a recession which occurs whenever gross domestic product and the total output of goods and services fall for two consecutive quarters. The 789 billion dollars stimulus package has not created many private sector jobs and the hundreds of billions in TARP money squandered by Treasury Secretary Geithner to bail out General Motors, Chrysler, Bank of America, AIG and Citigroup has not reached most business and working Americans (Peter Morici). Though the unemployment rate has decreased, it is because many Americans have stopped looking for jobs and are no longer in the unemployment rates. This, of course, does not show any improvement in the U.S economy. Most of the taxpayers’ money is being used to support illegal families with American-born babies; while, many illegal Mexicans are taking jobs from citizens who are desperately searching for jobs. With this unattended problem the country’s economical repair will be prolonged.
International trade and subdued investment combined conspired to the slowest world growth since 2009. World bank economic growth is expected to rise to 2.7% in 2017 from 2.3% last year. Throughout Europe and Japan, monetary support and fiscal policies should help support economy activity this year. In China, growth is projected around 6.5% which reflects certain factors like uncertainty about global trade, and private investments. China accounts for about one-tenth of all global imports and exports, and roughly one fifth of investment accounts but has slowed from 21% to 10% in the last few years. With the recovery in certain commodity prices, like oil, the divergence is expected to narrow heavily. The environment the world is in right is a difficult one, negative interest rates constrict monetary policies and may warrant more fiscal policies. What needs to be done is to initiate more useful policies to include human capital, investment, global technology transfer, and heavily promoting trade in order to obtain at least some level of positive
China as an economy has change rapidly over the past few decades. It has gone from a war struck country prior 1978, in which the economy was greatly effect, to one of the largest
China is a growing country; its population is about 1.4 billion, and as of 2014, the Chinese economy is the world’s second largest (in terms of nominal GDP,) totaling approximately US$10.380 trillion, with a growth rate of 7.4%, and the GDP per capita is US$3,619.4. From last century to this century, China has had significant improvements in their economic development. China had been in three major crises during the last century: the 20th century. The Fall of Qing Dynasty, World War II, and Civil War in China, all of them struck China in a destructive way. From the end of the 20th century, China was in a fast-developing mode.
Also, Australia’s and China’s Foreign Direct (FDI) and Gross Domestic Product (GDP) growth saw huge declines during the Global Financial Crisis (GFC). Both economies, being highly export driven, especially China saw GDP declines from 2007 to 2008. Australia declined by 1.9% and China by 4.6%. Both economies also experienced a huge fall in FDI—Australia’s FDI declining 24% from the previous year and China’s declining 36%. The huge economic decline and lack of confidence in both economies raised the unemployment rate in Australia from 4.6% to 5.4% and 4% to 4.3% in China.
Any political changes in a nation result in a decline of investor confidence resulting in the withdrawal of investments in the nation leading to economic recession. The article notes that only time will tell the ability of China’s president to implement the Deng Xiaoping economic-reform strategy. In a demonstration of hyperbole, the authors note that the future economic growth of China represents a “$42 trillion question”, which represents the difference in the GDP gains in 2033 if the nations continue to observe progressive economic growth, in comparison to the projected growth during the next 20 years considering the world’s average (WSJ). There is an increased struggle to attain the balance in regard to the middle income-gap trap. There are warnings from different economies that have predicted a
“China is confident and capable of maintaining a reasonable growth rate thanks to its economic structural reforms and emerging new sources of growth” –
It is well- known that China has a rapid economic growth over the past three decade. In order to cope with fast changing economy, the China’s labor market has experienced a significant transition from central-controlled labor market to more market-oriented labor market. This was primarily due to the growing importance of private enterprises and foreign investments, and the reform of state-owned enterprises (Chan & Peng, 2011). The new market-oriented market has stimulated the total employment from 170.4 million people been employed in 1990 to 293.5 million people in 2007(NBS, 2007). The growth of employment can be attributed to the generally improved employment conditions since the new labor laws introduced more stringent health and safety standards, as well as minimum wages (Allard & Garot, 2010).
Concerned investors overreacted to the news of a slower Chinese economy, which partly explains the stock market turmoil in the U.S. and around the world. China’s economy is not immune from the business cycle. Its economy’s growth rate eventually came down from the double digits to the single digits as it undergoes structural changes. China is shifting from an export-led to a domestic consumption driven economy. Since 1976, the beginning of China’s journey towards integration into the global economy, annual GDP growth averaged 9.5%. Since 2012, growth has been below average falling to 6.8% in the fourth quarter of 2015. While it can be argued that China’s economic slowdown has both direct and indirect effects on the U.S. economy through trade and financial flows, a slowing Chinese economy has marginal effects on credit unions. Moreover, it is difficult to aggregate the effects of China’s economic slowdown in future U.S. economic growth.
(Garrett, 398) These statistics indicate both that China is seen as an economically stable, profitable country and that China’s economic growth must be noticeably boosted by all that foreign investment. Increasing economic ties between China and other countries has resulted in a few other economic boons for the country. One of these benefits is the ‘hundreds of thousands’ of students that China exports to reap the economic rewards of having an increasing number of educated workers and possible technological innovations learned abroad. (Economy, 12) As appealing as these gains may be, China has had to balance the ups of globalization with the increasing risks brought on by interconnected trade and finance. As its productive capacity and investment opportunities increased, the country became increasingly dependant on exports and foreign run enterprises. In fact, “Nearly 40% of China's gross domestic product (GDP) is based on exports and more than 50% of those exports are generated by foreign companies operating in China.” (Garrett, 398) Garrett furthers that any reversal of China’s current state, either through decreased demand for Chinese exports or through Chinese crackdowns on foreign owned businesses, would devastate the national economy and destabilize the government. China has become dependant on foreign trade and continued investment in Chinese industries. It comes as no surprise that it has adjusted its governmental policies to be more appealing for investors