China's Staggering Economic Growth: From 22.544 Trillion to 2nd Largest Economy - Essay Sample

Introduction

Gross domestic product is a fiscal measure of the market value of all the end products and service produced in a given certain period, mostly annually. The Chinese economy skilled astonishing development in the previous decades that catapulted the state to become the global second-largest economy. In 1978- when China began with the program of the economic reforms, the state ranked ninth in the generally gross domestic product (GDP) with a real GDP of 22.544 Trillion. The annual change in real GDP for the year 2108 Is 6.6% while the GDP per capita in USD is 18210.1 in the quarterly of the year 2018. Since the induced of the eco0nomic reforms in 1978, China has turned out to be the world's manufacturing hub, whereby the secondary sector represents the largest share of the GDP.

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Hence, in the past years, China's transformation driven the tertiary segment and, in 2013, it developed the most significant sort of GDP with the portion of 46.1%, while the sub-sector still accounted the elasticity of 45.0% of the nation's total output. Meanwhile, the initial sector weight in GDP has contracted dramatically since the state opened to the universe. China weathered the world economic crisis better than many other countries. In November 2008, the Nation Council unveiled a CNY 4.0 trillion (USD 585 billion) incentive package to shield the state from the worst impacts of the fiscal crisis. The extreme stimulus program powered economic growth mainly through massive investments programs, which enabled concerns that the country could have been established up assets bubbles, in the capacity of some industries

The annual inflation rate in 2018 was 2.1% and the comparison with 2017 was 1.593 which means that the there has been an increase in the rate of inflation on the consumer prices in the two consequent years. The World Banks in China states that there has been an increase in the demand for goods relative to the supply. Thus, there is a consequent increase in the prices that customers have to pay for the products. When there are more people fighting over few goods, the price increases as it is the case for China. The World Bank also states that the cause of the increase in the rate of inflation for the economy of China was the expansionary monetary policies as well as the rising wages. There was an increase in the cost of firms leading to higher wages hence the firms were forced to raise the prices so that they would be able to cover for the costs. The economy of China is fast overheating and the results of inflation have been reflected in the erosion of the purchasing power of money.

The total government debt for China in terms of the percentage of GDP in 2017 was 16.3% while that in 2016 was 16.1% which indicates a slight increase. The cause of the increase in the national debt over the two years is the need for economic growth. The only way that the government found to arrest a slowing economy is allowing the regions to sell more debt. The need for economic growth required China to get more debts because their monetary system is healthy and that they will be able to pay. Increase in the government expenditure for the government of China has also led to the decision of getting more debts in order to expand the state activities, for reasons of increase in population and also other operations like the wars they engage in from time to time. These activities require quite a huge amount of money hence the debt increase.

The gross national savings in terms of the percentage of GDP in 2017 was 46.7% while that in 2016 was 46% which shows that there was an increase. The World Bank sources declared that the increase in the percentage of gross national savings is because of the influence it has to the growth of the economy. The rate of saving is essential for the financial development of a nation as a whole. Hence, for the case of China, economic growth and capital formation were to be experienced through the use of national savings. With the savings, the government is comfortable and can hold a better welfare for the citizens. The savings also take care of the inflation issues and the improvement in the level of per capita income for the residents. China's economy has had to grow through all the means hence increase in national savings was part of the process.

In the category of balance of payments, the statistics of the World Bank shows that the current account balance in terms of the percentage of GDP in 2018 was 0.361% while that in 2017 was 1.607% showing a significant decrease. The negative drift in the account balance are especially because of the cyclical forces such as the current high prices in the imports to China such as oil and also semiconductors. These areas drag the trade balances down. Another reason is the structural shift in the side of finance which affect the saving and rate of investment. There has been a fall in the share of domestic income in the Chinese households which has kept the account balances low. The current account balance in terms of USD in 2018 was 49.092 Billion while that in 2017 was 195.117 Billion which is an indicator of the large decrease.

The foreign direct investment, net inflows in USD in 2018 was 203.492 billion while that in 2017 was 166.084 billion showing that there was a large increase. The main reason for the increase has been the stability of capital availability in China. The manufacturing sector of China has been doing great and there have been many investments in other countries which have been attributed to large inflows of capital. The huge rise in the net inflow indicated the rapid economic rise of China because of the encouragement of development. China has continued to invest in other areas, engage in equity transactions, reinvestment of the earnings, debt transactions and also intercompany hence the increase in the net inflow. There has also been an increase in net value of assets across borders hence the reason for more capital inflow into China. China is set for more growth in the coming years with a continued increase in the inflow.

In terms of money, the MI for China in USD in 2018 was 7.8 trillion while that in 2017 was 6.8 trillion showing an increase. The reason for the increase in the MI is due to the rapid growth of China. It is likely that in a few years to come, China will be more reliant due to the growing economy and steady inflows. The main source of money for China is through exports since China is known to be the largest exporter and also the second largest importer. There is a fast-growing consumer market with major industries which are inclusive of agriculture, telecommunication services and also agriculture. These areas have boosted the economy of China to have an increase in the MI over a year. Alongside increase in money, there is also the capital accumulation which has also played an important role to the growth of China's economy. The sharp and sustained increase in the productivity has also been a reason for increase in the value of China.

In the category of exchange rate, the foreign exchange rate in terms of the Units of domestic currency (Chinese Yuan) per US dollar is 6.616 in 2018 and 6.143 in 2014 which shows that there has been an increase in the value of the domestic currency and moreso the stability of the Chinese Yuan. China has ensured its economic prosperity through motivating the global marketplace to buy its goods. China has kept the Yuan low relative to the USD so that consumers that use this current can get to buy more exports from China compared to the quantity they would buy in the case when Yuan was expensive. This has resulted to the maintenance of the stability levels of the Yuan in the value of US dollar. China has been able to control their currency through the government retaining a tight control but being open to the free market forces.

In the central bank interest rate, World Bank stated that the interest rate in 2018 was 1.408% while that in 2017 was 0.448% which shows that there has been an increase. The People's Bank of China has ensured an increase in the rates of interest which has been a way to deal with high costs of borrowing hence people start to spend less. They targeted a drop in the demand for goods and services which is supposed to cause the inflation rate to fall. The increase in the rates of interest was also in response to the US moves. The US Federal Reserves led to making more market-oriented reforms which were necessary for the Chinese economy hence the increase in the rate of interest. The increase has been successful in maintaining the asset valuation and the constant leverage channel for China. The economy of China has continued to benefit from the increase in the interest rates as more people find it difficult to borrow from the banks and there is less spending.

In the exchange rate policy, the current policy being used in China is managed. The history of the exchange rate policies in China is such that there was the use of fixed policy until the year 1995 until 2005. There was a need for modification of the exchange rates so that they would be in line with the government's plans. The modifications were as a result of the international pressures in a way to reduce the imbalances in the international trade.

Conclusion

In conclusion, the economy of China has undergone several modifications in the increase and decrease of elements making up the economy. The annual inflation rate in 2018 was 2.1% and the comparison with 2017 was 1.593. The total government debt for China in terms of the percentage of GDP in 2017 was 16.3% while that in 2016 was 16.1%. The gross national savings in terms of the percentage of GDP in 2017 was 46.7% while that in 2016 was 46%. The current account balance in terms of the percentage of GDP in 2018 was 0.361% while that in 2017 was 1.607%. Thus, China is evidently doing great in the economy growth.