China's Fiscal and Monetary Policy

For the last twenty eight years, China has been quickly growing into one of the largest economies in the world. China has accomplished this feat, in part, by radically changing their policies on trade and free market interactions with other countries. During this process, China has bought approximately one hundred trillion dollars of United States debt in the form of Treasury bills, notes, bonds, and Inflation Protected Securities (Amadeo). This debt has given China leverage against the United States which has enabled China to keep the value of the United States dollar high, while keeping the value of the Chinese yuan low. As the inflation of the dollar continues to negatively affect the

These effective strategies helped Hong Kong overcome the financial crisis. All these facts fully demonstrated that China is a responsible big country. After the Asia financial crisis, the importance of China's economy has been brought into focus; China's neighboring countries have begun to recognize the influence of the Renminbi.

Over the past ten years China’s financial flows have fluctuated a fair bit, with down turns and upturns throughout. With an obvious trough when the GFC hit. Although as soon as the GFC finished China’s financial flows bounce straight back up and boomed. As of recent China’s financial flows have been in a deficit and is now looking to be bouncing back up into the positive numbers. (Refer to Figure C)

This allowed the advent of privatized and foreign companies to compete with the state-run enterprises. China weathered the 2008 economic crisis pretty well; however, the policies implemented during the crisis to foster economic growth worsened the country’s macroeconomic disparities, which is one leading cause of the Chinese stock market plunge earlier this year (2015.) In order to tackle these imbalances, the new administration of President Xi Jinping and Premier Li Keqiang recently began to reveal economic measures aimed at promoting a more balanced economic model at the expense of the once-sacred rapid economic growth. This follows the logic of Keynes’ “stabilization policy”: reigning in excessively strong expansions to prevent their unwanted repercussions. The agenda of China’s top authorities also embrace daring reforms on interest rate and monetary policy management in order to adopt a more market-driven

monetary policy of devaluing the Yuan and the threat of the Federal Reserve raising interest

China, a country large in size, population, economy, is a really important asset globally. America’s second-largest trading partner, China is the producer of most of America’s items including clothes, consumer electronics, and manufacturing goods. The codependency of America and China is a very fragile and with recent debate of penalization, a potentially, volatile situation. It is the world’s second-largest economy after the United States, currently “accounting for about 12 percent of the world economy and about a quarter of global growth in recent years” (Swanson). China’s ability to produce large quantities of goods and at very low costs is what makes the country’s importance to global trade, especially America. 1.2 Trillion dollars of our debt is to China, which helps to keep our interest rates low by “allowing firms to make investments that would be unattractive at a higher cost of borrowing” (Kaneene). With investments like that, there is an increase in the capital available, an increase in the

China had a GDP per capita level similar to Zambia, less than half of the Asian average and was lower than two-thirds of the African average at the outset of the reforms in 1978 (Eckart, 2016). China was poor. Since then, China has grown exponentially experiencing nearly 10% GDP grown per year until 2014 raising GDP from 155 current US Dollars in 1978 to 7,590 US Dollars in 2014 (Eckart, 2016). China, who accounts for 18% of the world’s population, was able to lift 800 million people out of poverty and growth in the middle class. This document will examine China’s financial and currency markets.

The following paper coherently illustrates the trade patterns of USA and China and describes the various trade policies developed over the past years that have impacted the respective economies of both countries alongside the effect of the same on the bilateral trade relations between the two. Based upon the previous statistics, US-China trade is considerably one of the largest trading partners in today’s economies. Both countries’ trade relations entail exchange of investment, services as well as goods varying from agricultural products to non-agricultural products. Currently, China is the second-largest trading partner, third-largest export market and the biggest source of imports for the United States. The U.S. government’s debt purchased by China provides US the benefits of low interest rates (Morrison, 2015). While for few this economic relationship is considered to have a positive effect as it helps to fund the U.S. economy, for others it is an attributable concern that China may gain more power over the U.S (Loc.gov, 2016).

Other nations can also help with the aid of China’s New Year economy. The United States policies, through tax cuts and infrastructure spending, will help increase (proactive) fiscal stimulus and therefore benefit China in the long run. However, the financial situation is still at risk due to a sharp decline in China’s foreign exchange reserves. The stockpile decreased to $3.05 trillion which was a total loss of $69.1 billion. However, with a 6.7 percent growth over three-quarters, these problems seem to dwindle in concern.

So far, China appears to be navigating the two extremes… but China is hardly yielding control, raising concerns about where the bank will land on issues like climate change and labor rights... (Perlez, New York Times)

Almost 7 years removed from the 2008 Financial Crisis, many global economies have returned to a modest resemblance of stability and growth. In fact, by the end of 2015, the U.S. Federal Reserve and other leading economies had anticipated raising interest rates and abandoning quantitative easing. In order to stabilize the economy, the Federal Reserve imposed quantitative easing for multiple years; leaving interest rates near zero. Apart from Greece, even areas of the Eurozone have begun to exhibit strong spurts of growth. However what many expected to be a fruitful economic future may be coming to a halt. China, the second biggest economy in the world, has begun fall to its lowest level of growth since 2009. Following

An efficient economy is an economy where resources are allocated to serve every citizen in the best way so that there will be minimal waste and inefficiency within the economy. China is the short name for the country, but the real name is People’s Republic of China. China happens to be one of the economies that falls under an efficient economy because it has continued to improve other the past decades. “Over the past five years, economic freedom in China has improved by less than 1.0 point, continuing its patchy and uneven progress since 1995” (heritage.org). Although China has had some rough stages in economy efficiency, they have continued to strive and make it on top. China is one of the most thriving countries in the world today, but it is still classified as a developing country. The population has reached over 1.364 billion and contributes to the 19.06 trillion dollars in exports along with the 19.01 trillion dollars in imports. China has obtained over fifty different commercial banks in their growth to the present, but there are twenty-nine different banks present in their economy. The currency used is the Chinese Yuan and one U.S. dollar equals 6.4 Yuan’s.

In recent years, China’s balance of payments always keeps “double favorable balance”. In 2005, China’s national economy developed quickly and stably. The exchange rat of RMB became more flexible. The current account surplus increased obviously and the capital account surplus decreased. The foreign exchange reserve still increased quickly. In 2005, Chinese government did some fiscal policy and monetary policy. Such as decreased government expense, raise the tax rate, used managed floating system, improve the foreign exchange management, enlarged the foreign exchange market. We can conclude that china’s BOP will still keep “double favorable balance” and keep

With China's deepening Opening Up and economic restructure adjustment and the continuous appreciation of RMB in recent years, the

In 1994 the Chinese government made the decision to peg the RMB to the US dollar at a rate of US$1 to RMB8.7, a year later the Renminbi appreciated 5% and was revalued to RMB8.28. This rate would remain unchanged for the next 10 years, even though the Chinese faced heavy scrutiny and pressure to revalue their currency. The Chinese exercised many policies in maintaining their exchange rate. The PBoC controlled the amount of foreign currency by forcing all exporters to immediately sell their foreign currency to designated banks. The RMB could only be traded on the China Foreign Exchange Rate