Analysis Of China's Economy Current State And Future

China was under communism ruled by Mao ZeDong since 1949 to 1976 and classified Maoism for Socialism. China is known as one of the largest countries in the world due to their huge number of populations, being second largest economy in nominal GDP, being one of the leaders in natural resources such as gold, zinc, lead, iron ore, coal and etc. as shown in Figure 1 below and a leader of manufacturing. China is known as the largest producer and consumer of coal in the world for building power plant for the energy structure, electricity and creation of steel as coal was one of the cheapest resources. China was also one of the fastest growing economies with the largest manufacturing economy with international trades such as exporting goods, consumer market and importing goods. All these factors do have an impact in China’s GDP growth over the years. However, there are other issues such as health issues due to pollution such as air, corruption in China still exist and the rule of law of China is still under guanxi which applies for all business communications. Hence, China have been undergoing a reform for their business structures such as their State-owned enterprises (SEO) and Township Village Enterprises (TVE) and etc. to struggle to get out of being a middle-income trap. China is predicted to overtake the United States for their global currency due to their rapid growth in economy.

The Gross Domestic Product (GDP) of China hits 12237.70 billion US dollars as of 2017 and it represents 19% of the world economy with an average of 1970.49 USD Billion from 1960 until 2017, pushing the country to achieve highest in 2017. It also includes China’s lowest record in 2008 of US 4598.21 due to global financial crisis in 2008 whereby the collapse of Lehman Brothers that caused a global recession. China’s GDP has always been growing constantly over the years since 2008 which is contributed from Agriculture, Construction, Manufacturing, Services and Transport. China’s GDP was also contributed by foreign investors whereby their production of products was conducted in China due to low prices and cost in China such as having Apple setting up their production factories for their mobile devices and product in China. Hence, it boosts up China’s GDP and economy due to having foreign direct investments (FDI) which also includes importing and exporting to other countries and having overseas investment. Additionally, in the recent years of New normal, One Belt One Road has been proposed as one of the largest projects which connects Asia, Europe and Africa with 5 routes and creating more opportunities for urbanization by bringing up the purchasing power of village and other cities whereby local companies are encouraged to be ventured overseas and bringing business overseas. Overall, China’s annual growth rate have been decreasing in the recent years due to slowing down of economy in the reform, but it is expected to rise again after One belt one road project is completed.

In terms of GDP-per-capita, it shows the rise of standard and cost of living in the country as China is known as an emerging economy which is catching up with advanced economies apart of their livings standards. It was stated by World Bank’s International Comparison Program (ICP) that China has strong purchasing power and predicted to be the world’s largest economy in the future. Additionally, with China’s population of 1.379 Billion as of 2016 due to their one-child policy whereby increasing local citizens’ desire to product more children, there are more people who are contributing to China’s economy as compared to other countries as China is known as largest countries in the world and unlike other countries with no natural resources like Singapore, China has higher probability to sustain in a long-term period. However, in terms of construction, China is still having a long way to go to catch up with US or Singapore’s living standards and China is still unsafe due to the rule of law (guanxi) as corruption still exist within the country as compared to countries such as Singapore. This factor serves as a disadvantage for foreign investors as they will tend to fear of investing or expanding their business into China due to culture, rule of law and corruption.

Labor market analysis

As mentioned above, due to global recession between 2008 to 2010 which includes the New normal of China, unemployment rate is higher as there are limited jobs vacancies which lead to shortage of labor. For almost 30 years, wages and salaries have been increasing slower than other countries. One of the reasons for the decrease of unemployment were contributed by the enhancement of education in China and providing them new skills for the workplace in school allows fresh graduates to be able to have more job opportunities but it also led to another issue whereby there are too many university graduates within China at the same period that also caused a huge competitiveness in job hunting/seeking in China. Additionally, fresh graduates with higher level of education tend to be fuzzier and choosier on their choice of job in terms of wages which also caused unemployment rate in China to be stagnated. Regarding China’s government measures on employment, government of China had been trying to boost job creations as a top priority over the years such as having 7.52 million new jobs in urban areas in 2017 which contributed to the decrease of China’s unemployment rate. On the other hand, effectiveness and efficiency of labor had to be improved as Lewis (2012) had mentioned that having an effective recruitment practices, investing on human capital development and providing rewards will help to boost in overall labor productivity, attracting experienced workers and retain satisfactory. Overall, the government’s measures have been a success as unemployment rate has been decreasing below 4% which is one of the lowest throughout the years.

In terms of human resource and recruitment, the problem faced was under the rapid growth of human costs such as having average wages increasing 10%. China’s Ministry of Human Resource and Social Security have been pushed to increase their contributions from human resources industry to economic development through offering service to Chinese enterprises looking for foreign expansion and those investors who are involved in One Belt and Road project. Additionally, there are huge number of recruitment agency such as Expat to assist citizens to find their suitable jobs and helping workers to enhance the training and skills needed via online. Hence, there are also more programs which are created in schools for student to gain skills and experience which are needed for their future employment. In terms aging population, Senior citizens are also going back to school to learn more skills such as in Shanghai, there are universities which offers program for senior citizens to kill time through learning how to play traditional Chinese musical instruments and dance.

Price level analysis

As mentioned above, both interest rate and inflation rate in 2008 to 2010 period was caused by global financial crisis. The recession had also caused GDP shares of consumption to increase in China resulting to higher prices and increased rate of inflation but a decreased rate in Foreign Direct Investment (FDI) flows. Additionally, Inflation rate would still be considered as stable and reasonable as compared to 2010 to 2012. However, the main problems in China is due to their inflation rate and interest rate as their rates are controlled as their banking system are undeveloped in the early years. The issue started with Financial repression by sustaining undervalued exchange rate to reduce cost and when PBoC has the control over interest rates whereby it leads to the increase of inflation and depressed the growth in household income. Additionally, China has only limited choices and has no wide options for the population in financial system. Eventually, it led to corruption, financial system being heavily repressed and causing Tian’anmen events in 1989 which slows down the reform. Fortunately, interest rate has been decreasing and having a constant inflation rate over the years which shows the sustainability of China economy. This also includes issues like China’s state-owned zombie economy and shadow banking whereby SOEs can keep getting bank loans and government support. For an example, in the case of Cosco in 2013 whereby Ministry of Finance gives a subsidy to ship owners to dump the old vessels and changing into new ones from state-owned builders such as Waigaoqiao. This caused problems for China in terms of in-efficient debt-ridden stated-owned enterprises, triangular debts in the coal industry whereby the debts among banks/buyer/seller/customer/manufacturers/suppliers/end-users. Some of these issues have been solved by “Grab the Big and Release the small” for SOEs whereby choosing larger enterprises over small ones and re-financing/ reorganizing them with state control and privatize or sell the small ones to Foreign-invested enterprises (FIE).

China only has a few free trade zones unlike countries like Singapore which have free trade policy which has lesser restrictions on distribution services such as importing and exporting. The free trade zones of China are ShenZhen, Zhuhai, Shantou and Xiamen for foreign investments to enter China market using the open-door policy for service sectors and businesses since 1992. China still has a barrier of entry for trades to be conducted other than free-trade zones, but these zones still did contribute to China’s Shanghai composite stock market index and GDP through businesses and foreign investors as shown in Figure 9. Stock market index was the highest during 2005 and crashed in 2008 due to the rise in China’s economy following by recession which caused the implode. However, China’s government decided to do a reform by slowing down economy caused a rise and drop in value of yuan. Even though it made exports lower for foreigners but there are still declines in the stock market which is not covered.

Conclusion

In the next few years, China’s economy will still be very strong and sustainable as it is predicted to overtake global currency and higher spending growth than other countries with the potential surpluses in 2030 to 2032 through One Belt and Road projects. China still have room for improvement such as in their undeveloped financial system to maintain their both their interest rate and inflation rate and human resource management on their job vacancies as their population is rising yearly.