Economic Growth of China, Research Paper Example

Introduction

The economic growth of a country is determined by several factors, and this factors various from one country to another. Mostly, it is based on the key economic factor or force in the financial circles. China, for example, has proved to be a key exporter of various products globally. It has improved its gross domestic product (GDP) hence stirred the economic growth. This paper, therefore, is focussing on China economic growth since the beginning of the year 1978, when the country changed its economic policies and opened her doors to other investors. This paper will also analyze China as the critical country in the investigation. Main reasons why China has been chosen for this essay are due to a number of economic factors that attract economist to study and analyze Chinese economic phenomenon.

The main reason why China has been chosen as an investigated country is due to above mentioned the Chinese economic phenomenon, China has managed to transform itself from a centrally planned closed economy in the yearly 1970 to a world hub of manufacturing and to export powerhouse. Since China initiated economic and market reforms in 1978 the East Asian Giant has since then achieved economic growth averaging at 10% annually

Over the course of this essay, exports are going to analyzed and extend our understanding of factor of economic growth and development. Secondly, the developing countries are going to be examined including data analysis. Exports have been a major factor and supporting component in Chinas economic expansion however in the last two years’ percentage of exports in China declined. Despite the fact that there has been a constant drop in global trading, Chinese exports rose from the 12.3% in 2014 to 13.8% in 2015. Major exports are going to be analyzed and as of 2017 41% of total exports from China come from mechanical and electrical products.

Relationship between exports and economic growth

According to Morrison (2015), economic growth can be defined as an increase in the total value of goods and services which are produced by each sector of the economy. The economic development of a nation is based on various factors, and some of those factors are many exports and imports a country makes per year. Exports growth plays a vital role in economic development it has a direct effect on internal trade and economic stability. If exports are larger than the imports, the country has a positive trade balance which means high demand for countries goods on the international market which has a positive effect on the domestic currency. Countries tend to increase their exports over the imports on the global market which in course strengthens goods and services produced by such country on the world market and have an effect on stability and reliance.

Substantial researches have been done and examined by academics within the field of economic growth. Developed countries are characterized by political and economic stability these positive relationships between the political and economic stability provides incentives for capital investment, and these countries usually have the high number of exports within the manufacturing industry. Investors are attracted with a long-term stability unlike primary products manufacturing sector does not have a significant price fluctuation, therefore, has a more elastic demand within the exports market.

Following graph produced by World Trade Organisation shows the positives of the trade openness which contributed in enhancing developing countries. From the year 2000 to 2008, we can clearly see the exports from developing countries doubled compared to developed countries. However, this graph also includes the primary resources which are not directly related to the essay, but I firmly believe that such figure needs to be present to show the overall exports market which in the developing countries.

Volume of exports of developed, developing and transition economies: 1990-2009

Source (https://www.wto.org/english/thewto_e/coher_e/mdg_e/development_e.htm)

Rostam (2015) stated that “Export expansion and economic growth indicates the relationship between different economic factors.  Further empirical evidence “examines the relationship between the export development and economic growth. The data used to complete this report is collected from seventy-three countries during the periods of 1960-1978. It is proven during that time that countries that are on a low to middle income that exports have a positive relationship with the economy and total factors of production. The expansion of the manufactured exports has a higher ratio of direct contributes to economic growth as compared to primary exports this classified as a positive effect on the economy.

1. The Primary exports do not offer knowledge spill overs and other externalities as manufacturing exports
2. Primary products are subject to excessive price fluctuations and have inelastic demand in the export market.
3. With the sudden growth and demand for primary resources economy in developing countries grows and generates huge amount of cash which leads to improvement in quality of life more projects undertaking and most importantly government spending, including public spending, this also hold true until prices drop sudden e.g. The change in Oil price since 2014 from $120 per barrel to less than $30 in 2016.

Economic Overview

Over the past 30 years since China embraced the free market principles no economy in history has witnessed such a growth and industrialization of a country that that of China. Today China ranks as the world second biggest economy, and the economy has been booming almost steadily since the economic reform.  Currently, Chinese GDP per capita stands at $ 11.561 it is ranked as 73rd in the world in nominal terms.  Over the course of thirty years, this figure rose from approximately $113 to $8068 in 2015.

Since the introduction of reforms by Deng Xiaoping, the Chinese economy has been growing at an average rate of 10% three times the global average. Since 1978 the GDP saw a rise from $147.3 billion to an astonishing $9.4 trillion; however since the 2010 Chinese economy has seen slow growth by their standards and averaged 6.7% in worst times. Despite the financial crises of 2008 and other advanced economies of the developed world either contracting as and e.g. of Euro area which contracted in 2013 by 0.4% The Chinese figures to look impressive compared to others.

Above graph has been taken from World Bank shows the structure of the GDP in China.

Above Graph represents that the Agricultural sector of China has an average of 9% within the structure of the GDP, with the largest contributors Industry and services contributing 40.9% and 50.2 % respectively.

In 1990, China used to produce less than 3% of global manufacturing products. The Chinese’s economy has expanded ad now it is the largest producer of manufacturing products which has stirred economic growth.  The increase of manufacturing industry at a rapid pace has made the country to share production outputs in the world.  To be precise China produces about 80% of Air conditioners 8 in 10 today are produced in Chin this example should be treated as a reference and idea to what numbers the Chinese manufacturing industry expanded to in the last 40 years. Over the last 20 years, China manufactured products have increased in both the quantity in production on the global market and most importantly the competitiveness of such good the real quality of Chinese manufactured good improved drastically, with more and more advanced technological products being assembled in China but also design and researched within the Chinese territory. I firmly believe that the export structure in China changed the exports to the global market are becoming more specialized competitive and focused. Chinese scientists are working together with some of the leading researchers from developed countries such as the United States and Britain to stimulate high-tech technological industrialization of China and its economy. The value of Chinese exports in 2016 accounted for approximately $2.011 trillion

The biggest importers of Chinese goods are:

• United States: US$410.8 billion (18% of total China exports)
• Hong Kong: $334.3 billion (14.6%)
• Japan: $135.9 billion (6%)
• South Korea: $101.5 billion (4.4%)
• Germany: $69.2 billion (3%)

Share of export and imports

Above graph shows the total export and imports of goods and services in China from 1980 t0 2015. From the graph, Exports since 1994 are increasing the imports which means a balance surplus, also Chinese economy is now producing

Data Analysis

The data presented here are analysis using descriptive analysis from the information obtained from World Trade Organization database. In order to show the data two variables independent and dependent variables were used. In this case, the dependent variable is Growth domestic product (GDP), and the independent variable is exports of products. It is clear that the Chinese economic growth is based on the exports of products since the beginning of the year 1978.  The data used are from the year 2015 economic performance of China based on the export of various goods and imports.

Export affect domestic growth product

Based on the data obtained from World Trade Organization (WTO) database, in the year 2015, China was the second leading exporter of merchandise to various part of the world after the European Union. However, from the data, the increase of export affects the total growth domestic product of China. Export of goods to different countries affects the economic development of a China since the beginning of the early 2000s when the country opens its door for international companies.  According to the data from WTO, China is the only single country which exports the highest number of merchandise, second after the European Union, and we all know EU is a collection of over 28 countries. The total export from merchandise stands at 2 274 949 value in 2015, and the export of agricultural produce stands at 72 532, which the third highest after Brazil, the United States, and the European Union.  And in manufacture products, China stands second largest at 2 145 738, which is almost 15% off total exports and that is the highest improvement in the market.

However, based on the data from WTO Chinese growth domestic product (GDP) of China increases as the export of goods increased. The growth of the economy depends on the exports of products. When an export increase the domestic growth product also increase and when it decreases the growth domestic declines.  It can be shown based on the data from WTO, which means that when China exports merchandise, agricultural produce, increase trade the economic growth increase by almost 5% based on the data of 2015 (WTO, 2015).

In the international trade, China has expanded its business partnership with nearly every country around the globe. Based on the data obtained from WTO, Chinese business partnership and trade with other countries rose by 65 % since the beginning of the 2000s translating into lots of billions of dollars in foreign exchange, hence increases domestic growth product of China. International trade is the dependent variable which increases the economic growth of China. The increased trade with other nations and access to outside market increase gross domestic product by almost 20% based on the data from the WTO. This translates to economic growth of China and it is reason China economic growth between the years of 2000 to 2015 was as high as 11% per annum.  The more the trade deals between China and other countries the higher the domestic growth product hence economic growth.

Conclusion

China has experienced constant economic growth in last two decades. It is clear that this is based on the changed policy which opens the Chinese market for corporate investment which stirred exports. The growth is based on increased export in merchandise products, agricultural produce, and international trade. From the data analysis, the domestic growth product of China depends on the export of goods because China is the highest export of almost all commodities exports oil and gas.  Therefore, export is the greatest contributor to the economic growth of China. From the data analyzed it is noted that import does contribute to economic growth of Chinese economic too but not the way export contributes to the growth. This is because China does not have lots of imports compared to an export of products.

Recommendation

It is, therefore, recommended for China to change its currency policy which stops many countries from accessing the Chinese market. It is evident that the United States and other Western nations have been complaining about this policy which devalues Chinese currency making competition difficult. If China could change this policy, other countries would export goods to China which would stir growth due to taxes and levy obtain from these products.  The government of China should also open market for other players in the IT industry to an investor in China which would create employment and earns the country lots of taxes. Above all, the government should limit its dependence on import oil and invest in its source of energy rather than depending on the export of oil. It would improve growth and stabilize the country’s gross domestic products.

Bibliography

Morrison, W., M., 2015. China’s Economic Rise: History, Trends, Challenges, and Implications for the United States. RL33534

Rostam M. K., 2015. Chinese Economic growth and export analysis: China Economy: Volume 2: 2-45.

WTO, 2015. World Trade Organization Trade analysis https://www.wto.org/english/res_e/statis_e/world_region_export_16_e.pdf