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China was attributed by periods of increased growth per capita GDP growth, which was the growth of production per individual, followed by reversals in the first two decades following the establishment of the Peoples Republic of China in 1949. The first five-year plan was pioneered by the stages of significant expansion, during which 6000 soviet supporters were instrumental in running and developing the 156 large scale capital intensive ventures. While doing so, they greatly accelerated and improved the country's industrialization. Following that, the Great Leap Forward (1958-1962) squandered much of their achievements by prohibiting material rewards and burning markets. Many of these reforms were undone again between the year 1962 and 1966, which led to another period of productivity which increased the growth per capita significantly. However, this term was not to last long because, important events such as the Cultural Revolution, a period where the citizens clashed with the authorities led to an economic recession again (Morrison, 2013).
A committee known as the Third Plenary session in December 1978 was the focal point towards the reviving of the economy that seemed to worsen each year. It made laws that allowed farmers to sell their agricultural products in the local market and at the same time abolished a system of a joint family to household farming. The new system was efficient since many people had to be active to sustain their living standards rather than depending on people collective efforts (Chang et al., 2014).
The following year after the establishment of these reforms, the law on Chinese foreign ventures was introduced which allowed investors to come to China and invest in them so that they can boost its economy although they had to wait until the mid 0f 1980s because the government had to take time to reduce the foreign restrictions which allowed companies to retain profits and dictate their wage bills on its employees. Such measures helped boost the GDP of China from 6% to 9.4 between the years of 1953-1978. It also led to urbanization as many workers were drawn from rural areas to higher paying jobs in the cities (Morrison, 2013).
This reduction in foreign investment rates and process of market liberalization made China as a major global exporter. Market liberalization also led to the opening of the Shanghais stock exchange for the first time in a period close to 40 years. Such measures and strategies finally made China accession to the World Trade Organization (Chang et al., 2014).
China has the second largest economy in the world regarding purchasing power and annual GDP after the United States of America. When it comes to economic growth, China is ranked fifth by a percentage of 9.5%, with an average increase of 10% and sometimes rises to 15%. China is listed as the highest exporter of goods and services and currently numbers two to the United States of America when it comes to importing of products and services.
Foreign trade is one of the most critical aspects of directing the economy of China. A large part of the China GDP is based on exports, although it tries to improve domestic market trade in a gradual reorientation. In the year, 2008, the value of foreign trade was estimated to be 2.4 trillion us dollars. China continues to be a world factory producing all kinds of accessories that range from I phones and grills. China labor is relatively cheap compared to European countries. For example workers in Foxconn which is regarded as one of the largest factories in the world earn around hundred dollars a month compared to the United States of America which cost approximately ten thousand dollars at the same period (Chang et al., 2014).
One of the reasons positive growth is attributed to the massive government spending was used on state-owned companies that influenced the industry. The three big companies include CNOOC, CNPC, and Sinopec which are less profitable compared to private firms. The state-owned companies returned around 4.9 percent on the assets compared to the 13.2 percentage that private companies offer. Another reason that has led China to its large GDP economy is that major corporations who would love to sell their product to China will have to open their industries in China which reduces employment raising the living standards of the citizens of China (Morrison, 2013).
Challenges Affecting China GDP
A State Dominating Banking sector, and Growing Debt
China is dominated by state-owned banks which enables government leadership to have an influence in over bank lending. In the year, the five largest banks were state-controlled which accounted for 68.5 % of total bank assets in China. The banks in China prefer to lend SOES, while the private firms are forced to pay higher interest rated to obtain credit. However, SOES do no pay their loans which account for 85%( $1.4 Trillion) of all the major banks in China. As a result, of credit defaulting, it has led to an increasing amount of nonperforming loans. According to many analysts, China most significant problem in their banking system is that they cannot allocate credits according to market principles such as risk strategy management (Chang et al., 2014).
Increasing debt in China is also a big problem in China since on the impact it has on the banking system. At the start of a global financial slowdown, government entities borrowed a lot of money to support the growth of infrastructure with an aim of boosting the local economy. By the end of 2013, financial year, it was reported by the Chinese National Audit Team that the domestic debt had risen to 67% equivalent to 3trillion dollars which rose to 4.3 trillion dollars by the year 2015.
The rise of China economic growth model has been due to industrialization. The growth of heavy industries in China which are environmental polluting and energy-intensive possess a severe risk to the health of the population of China. The government of China always disregard its environmental laws to concentrate on an increase in economic growth rate.
The Chinese government is always critical of a foreign government who questions their environmental pollution calling their calculation and reports inaccurate and violation of international conventions and Chinese laws. The Chinese media has helped in reporting public frustration in ecological problem forcing the central government to comply with environmental regulations at the expense of economic growth.
Demographic policies were implemented in the year 1979, in which every family should have one child. These demographic strategies had a severe impact on the Chinese economy since it profoundly reduced the Chinese workforce. For example, the growth rate decreased from 5.8 births per woman to 1.6 in 2012. As a result, it is affecting the labor force that China economy needs to increase its economy GDP.
Implications Of China Economics Rise To U.S Policy
China emerged as dominant economic power has given Chinas government increased believe in its economic model. Due to Chinas rapid growth, many analysts think that the main challenges that the United States of America has is to convince the Republic of China that it should maintain the international trading system which is the main reason that has led to their economic rise and as a result they should take more managerial roles in support the global trading systems. Trade and economic reforms are the best way for China to maintain and grow its economy by decreasing investment and trade barriers would significantly boost the competition in China.
However, it is believed that one of the active ways of dealing with China economics issues would to support a policy of interaction with China using various strategies such as the newly created China-US comprehensive Economic Dialogue. China growing power has made the nation an influential figure on the global stage on some matters significant to U.S interest such as climate change, global economic cooperation and nuclear proliferation (Chang et al., 2014).
U.S policymakers have found some challenges on how to solve these issues. The United States of America is torn apart on whether they should hold a public confrontation or quiet diplomacy such as U.S leverage which has risen since the rise of China economy. As a result, the government of China can implement new economic reforms as outlined in the Third Plenum.
Chang, J., Zhang, W., Alon, I., Lattemann, C. and McIntyre, J. (2014). China Goes Global. Bradford: Emerald Group Publishing Limited.
Morrison, W. (2013). China's economic rise. Washington, D.C.: Library of Congress, Congressional Research Service.
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