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Before China initiated the economic reforms 35 years ago, the policies of a planned economy led to the sustenance of an economy that was poor and largely stagnant. The economic policies upheld by the nation were by large ineffective in the substance of the country. The economic policies of the time were reduced to the maintenance of the basic function. The country was also largely isolated from the rest of the world.
However, after opening up of the foreign trade the country has been capable of making some improvement on the economy. It has also rise to the level of being the second largest economy. The development of the economy has been increasing over the years. It was normal for the country to post consistent and abnormal economic growth.
The article focuses on the development of the Chinese economy. It notes that the economy has witnessed an upsurge of the foreign direct investment. This is an indicator that the country is finally joining the international business world given its long history of seclusion. The article notes that the foreign direct investment in the country has developed by 22.2 %. The development of the economy has been witnessing a steady rise per month with each month accounting for an addition to the annual development.
The measure of the foreign direct investment excludes the investment in the financial sector. The majority of the foreign direct investment went to the service sector. Therefore, the international investors are focusing on the service sector due to the returns on investment attained in this industry (China Daily, 2014). The investment in the manufacturing is dipping with the percentage decrease being 13.3%. The reduction of the investments in the industrial sector symbolizes the over-investment in the sector or the unavailability of the investment in the sector by the foreigners. It may also indicate the competitive nature of the industry is owing to the dominance of the local companies.
The principal countries investing in the China are Britain and Republic of Korea. Japanese investments in the country are dipping. The same trend of reduction in investment is also witnessed in the United States and ASEAN countries contributions. The investments in the country come at a time when the country is still facing a heavy downward pressure. Central bank has made some moves to control the drag by reducing the lending rate. This move is expected to increase the accessibility of credit and investments (China Daily, 2014).
The second article focuses on the upsurge of the exports and the decline of the imports. The writer notices that the nation has been experiencing difficulties in terms of the economy. The economy is no longer importing as much as it did (China Daily, 2015). The decline in the imports is bound to increase over the coming months (China Daily, 2015). The exports rebounded after a surprise slump in January. The trade surplus is widening in the country even after opening up of the economy.
The trend in the imports indicates a continued decline with the imports falling by 19.7 percent in January. The February statistics show that the imports decline is increasing. The commitment of the country to the increment of the participation in the international trade has been challenged by the development. The slump in imports and erratic nature of the exports presents a new challenge to the country even after the commitment to reach the international market more and become an active player (China Daily, 2015).
The above articles are giving two different analysis of the Chinese economy. On one hand, there is more involvement of the external investors. This is an indicator that the country is increasingly becoming a player in the international trade. However, there is also a slump in the real markers of the international trade (Gong, 2012). The increment in the exports indicates that the country is reaping more from the investments.
However, the reduction in the imports could be an indicator that the country is spending more of what it produces than exporting (Gong, 2012). The two reports are contradictory. The more the level of investment, the higher the exports and imports. However, since the majority of the foreign investors have focused on the service sector, the investments are not likely to be manifested in the balance of trade.
Some of the reasons cited for this trend include the fact that the country was developing new perspectives and there was a lot to be done in order for it to catch up with the rest of the countries in the world. The growth has recently been slumping with the consistency of the growth slumping gradually. The country is projected to be among the largest economies. This paper will focus on the development of the economy and the recent issues affecting the sustenance of a consistent rend of development. The paper proposes that the economy has reached the plateaus stage in the development hence it is expected that the economic growth being witnessed in the country will slow down even further.
Global financial crisis of 2008 affected the economy greatly. The country witnessed slowing down of the e economic growth owing to the reduction in the exports and foreign direct investments. The gross domestic product of the country also witnessed significant reductions. Millions of the Chinese workers lost their job due to the unsustainability of the economy.
The government responded to the crisis by providing an economic stimulus package of over half a trillion USD. The government also loosed the monetary policy in order to increase the ease of access to funds. There was a concerted effort to ensure that the spending habits in the country were on an all-time high. This approach led to the development of the economy. The implementation of such polices led to the quick recovery of the economy.
The leadership of the country envisioned the implementation of the policies as the ultimate weathering factor for the effects of the economy performance. The real GDP of the country averaged at 9.6% from 2009-2011. However, there are indications of the economy slowing down. The real GDP in 2013 and 2012 averaged at 7.7%. The economic performance of the nation is anticipated to slow down further over the next years with the 2015 projection being placed at 7.1%.
The economic forecasts indicate that the economy of the country has the likelihood of surpassing that of the United States making it the largest economy in the world. However, there are some reservations on the efficacy of the statement. The ability of the economy growing consistently in the long term will be dependent on the ability of the government to implement comprehensive economic reforms that will increase the rate at which the economy will develop. The economic reforms will be responsible for making the economy of the nation a fully free market system. The removal of the constraints on the investment and the enactment of policies making the economy fully free will be more incentives for the apprehensive investors to come into the country and establish their businesses.
The government also has to focus on the development of the economy such that it will be based on the consumer demands as opposed to the current exports and fixed investments. Therefore, the country has to develop the potential of the market to purchase the products. It also has to ensure that it gives the people the incentives to purchase their products as opposed to the externally produced products. This focus will increase the ability of the economy to sustain itself even with the imminent reduction of the export levels.
The government also has to focus on the development of productivity and innovation. The country is still responsible for the majority of the patents in the region. However, the action on the patents is slumping with the majority of the people being unable to access the financial capital needed to create value from the innovations. This leads to an issue of underutilization of the intellectual reserves. The focus of the government on the improvement of the capacity of the people to produce will determine the effectiveness of the innovations. It will also lead to the development of more relevant innovations in the market that will in turn increase the value of the output in the country.
Available innovations will be responsible for the development of more production capacity in the economy. The communique of the communist party indicated that the country would enact the reforms that will be responsible for the development of the production capacity. One of the most notable reforms proposed is that the country will lay back and let the forces of demand and supply determines the allocation of the resources. The involvement of the government will be marginal.
This reform will lead to the development of the production capacity of the nation such that the quality and the cost of the products will be reliant on the ability of the market to allocate the resource. The hindrances and the protection of the economy that has affected the development of the economy will be out of the picture. With the enactment of the reforms fully by 2020, the nation will be in a better position to compete. The forecast of it being the largest economy in the world will finally be attainable.
Development of the Chinese economy has led to the development of more bilateral ties between the country and other notable economies in the world. The country has developed its ties with the western world a feat that was never deemed possible. The country has been trading significantly with the United States, United Kingdom, republic of South Korea and japan. Opening of the border to external trade led to the development of the economy such that the external powers identified the significance of the land and the potential that lay in the market.
Owing to this discovery, the country witnessed concerted efforts to increase the level of investments. The foreign direct investment has been flowing to the country for a long time such that the country is deemed one of the strongest investment destinations in the region. The foreign direct investment has increased such that the region ranks as the highest destination for the foreign direct investment.
Low cost of labor coupled with the increased development of the capacity to produce goods at a lower price has led to the creation of the highest value for the foreign companies. This aspect about the economy has witnessed the development of a new destination for the offshore services. United States’ companies have moved to the country in a bid to reduce the costs of production. As a result, the companies have been capable of providing their American customers with affordable products.
Rise of the country to the high economic prowess has also been met with issues. There are concerns that the country has been using underhand methods to produce their products. Some of the issues that have faced the country include the assertions that the country ash been devaluing its currency in order to reach out to the European and American markets whereby it has flooded the countries with cheap and often substandard products. This image of the country and its production systems has led to the great undermining of the capacity of the nation to produce adequate output. It has also led to concerns on the viability of the country’s production systems in the event that there was a market based system.
Another allegation brought against the country is that the country has been using the intellectual property stolen from the American companies. Offshoring of some production systems to the country has been viewed as the main source of the issues witnessed in the market. The companies that produce the components in the country have been worst hit by the infringement on the intellectual property. The sustenance of the practice is major threat to the companies operating in the country. Therefore, the viability of the economy will be greatly hampered by the insistence on the infringement. The companies are considering moving to other countries that have better patent control laws. The use of the patent in laws in the nation has to be developed to reflect the international standards.
Failure of the country to come up with the most adequate systems of controlling the malpractices may also see a boycott against the products. The infringement on patents has led to the development of an aversion against their products. For the consumers that are looking for quality, the Chinese products rank second. Therefore, the country has to ensure that it comes up with adequate control mechanisms of ensuring that the country is working towards the right development. The causes of the issues being witnessed in the aforementioned articles indicate that the country still has a lot to do in terms of the development of a compliant business environment.
The government perceives that the development of a strong economy is a vital ingredient in the development of a society that has high levels of social stability. However, there are numerous challenges that threaten to dampen the pace at which the nation has been developing over the years. The country has increasingly showed reliance on the distorted economic policies. One such policy is the reliance on the exports and the fixed investments as opposed to consumer demand.
As a result, the government has indicated massive neglect of the local consumer pool. When other countries are looking for ways of tapping into the huge market presented by the explosive population, the Chinese government has oddly focused on the external markets. This policy has led to the reduction of the capacity of the people that are supposed to form the basic power of the economy. The economy has exploited the huge population in terms of the labor only.
The other potential of the economy in terms of the domestic demand has been largely neglected with the majority of the people in the country relying on the external products. The importation of the products is wanting given the production capacity of the country and the capability of the production systems to meet the demand. Poverty in most of the regions in the country has led to the loss of the capacity to purchase. The neglect manifested by the government in terms of the provision of the most adequate resources has led to the failure of the systems.
In conclusion, constant investment is also a wanting policy that the government has been using over the years. The reliance on the government support has led to the questionability of the viability of some of the companies. Over protection of the companies has led to the concealment of the production inefficiencies. This is probably the reason behind the evasiveness of the companies when it comes to the adoption of the excellent production systems. The country ought to refocus its policy-making actions to configure them with the international standards. The catch scenarios that it uses when evaluating investors will eventually work against it with the development of other major destinations for business process offshoring.
China Daily, (2014). China FDI inflows jump 22.2% in November - Business - Chinadaily.com.cn. Chinadaily.com.cn.
China Daily, (2015). China February exports surge, imports drop|Chinadaily.com.cn. Usa.Chinadaily.com.cn.
Gong, G. (2012). Contemporary Chinese economy. London: Routledge.
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