Economics BRICS

Topics: Macroeconomics, Economics, Investment Pages: 25 (6401 words) Published: May 2, 2014
ECONOMICS ASSIGNMENT
Glossary
SA – South Africa
GDP – Gross Domestic Product
FDI – Foreign Direct Investment

MBA 2013 January Intake

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ECONOMICS ASSIGNMENT
Question 1
Using appropriate diagram, illustrate and explain what has happened in the Chinese economy since 2005? What have been the year-on-year GDP growth rates and what, in your opinion, has led to this performance? What are some of the other economic problems China seems to be experiencing?

Over the past three decades, China’s policies did not allow its economy to grow, however, from 1979 China shifted from a centrally planned economy to a market based economy and according to Morrison (2013):

China has been among the world’s fastest-growing economies, with real annual gross domestic product (GDP) growth
averaging nearly 10% through 2012. In recent years, China has emerged as a major global economic and trade power. It is
currently

the

world’s

second-largest

economy,

largest

merchandise exporter, second-largest merchandise importer,
second-largest destination of foreign direct investment (FDI), largest manufacturer, and largest holder of foreign exchange reserves.

China economy 2005 - 2012
After the introduction of the various economic reforms, their economy has been moving faster than before. From 2005 onwards, as is seen from Table 1 and Figure 2, China’s GDP has been increasing until the global economic downturn which started in 2008 and affected the global economy thus having a direct impact on the Chinese economy. Due to various obvious factors, the critical one being China’s dependence on exports. The GDP fell from 14.2% in 2007 to 9.6% in 2008 and down to 9.2% in 2009. The effect on aggregate demand (AD) can be determined by first understand what makes up the aggregate demand. It is the sum of the general consumption, the investment, government spending and the net export. After the year 2008, some components in the equation, such as consumptions, investments and net exports, experienced a decrease. This indicates that GDP (Y) also decreased (from Y1 to Y2) which means that a downward (left) shift of the aggregate demand curve has taken place as shown in Figure 1 (From AD to AD2). After this shift, China is affected in several ways such as rise in unemployment and reduction in buying power of the population in general.

MBA 2013 January Intake

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ECONOMICS ASSIGNMENT

Figure 1 Downward shift in aggregate demand

Table 1 China’s year-on-year percentage GDP growth rates (2005 – 2012) GDP Growth
Year

Rates (%)

2005

11.3

2006

12.7

2007

14.2

2008

9.6

2009

9.2

2010

10.4

2011

9.3

2012

7.8

(Source: Data from data.worldbank.org/)

Figure 2 Graph representing data from Table 1

MBA 2013 January Intake

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ECONOMICS ASSIGNMENT

16
14
2007
12
10

2006
2005
2010

(

G
r
o
w
t
h

2008

2009

2011

)

% 8

r
a
t
e
s

2012

6
4
2
0

(Source: Data from data.worldbank.org/)
Causes of China’s Economic Growth
China has experienced general rapid growth due to two main factors in the economy; 1. Large capital investments
2. Rapid increase in productivity

1) Investments were obtained from domestic savings and foreign investors. The domestic savings are simply China’s own savings from before the reform. This country has the highest level of savings as part of their GDP worldwide. This high level of savings has enabled the country to boost the economy through high level of local investments. Foreign investments have also increased due to China’s new policies regarding such matter.

2) Increased productivity is the other main factor that led China to perform this way economically. It has been made possible through the rationalised use of resources for more fruitful uses in sectors such as agriculture, trade and services. The manufacturing sector has experienced such a boost that China is now considered the “World’s...

References: Yongding Y., 2010 The Impact of the Global Financial Crisis on the Chinese Economy and
China’s
http://twnside.org.sg/title2/ge/ge25.pdf Last accessed 03-10-13
National Development and Reform Commission (NRDC) People’s Republic of China, 2013,
[online] Available at en.nrdc.gov.cn Last access on 02-10-13
Federal Reserves, 2013 How does monetary policy influence inflation and employment?
Morrison, W. M., 2013 China’s Economic Rise: History, Trends, Challenges, and
Implications for the United States, Congressional Research Service [online] Available from
APCO worldwide, 2010, China’s 12th Five-Year Plan: How it actually works and what’s in
store
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