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Evaluate the impact of the policies available to the Chinese Government to deal with their declining competitiveness.

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Introduction

´╗┐Ben Ezekiel Test (40 Mins) Evaluate the impact of the policies available to the Chinese Government to deal with their declining competitiveness. (30 Marks) One policy available to the Chinese government to deal with their declining competitiveness would be to try to increase labour productivity through increasing spending on education and training to help develop skills and close any skills gap. Government may also promote a more flexible labour market, such as reducing trade union power, encouraging part-time work, and encouraging new business start-ups.This would lead to greater competition within the Chinese economy leading to increase in working effort from workers and therefore higher incomes and GDP per capita However, improving education takes time to come into effect ...read more.

Middle

Finally, investment may be stimulated by reducing the interest rate elasticity of investment, which means it is easier to raise interest rates without a negative effect on investment. This could be achieved by investment grants and tax relief on investment. However, the danger with too low interest rates is that they could trigger an increase in household spending (C) causing demand pull inflation, which would worsen, rather than improve, competitiveness. The level of competition in product markets can also be improved by deregulation to reduce barriers to entry, In addition, privatisation of industry is also likely to improve competitiveness, but there are few industries left in the UK to privatise. ...read more.

Conclusion

A country such as China could also resort to becoming more protectionist in order to increase domestic competition. One strength of protectionism is that it keeps the domestic economy flowing. Since there is a decrease in imports, domestic firms have less competition, and so are able to continue. The domestic economy also strengthens, because the unemployment rate will be minimal. This is because the domestic firms are able to produce and sell more goods with a lot less difficulty, giving firms less incentive to decrease its cost by decreasing its work force. The people with jobs will keep consuming, allowing a flow of the economy. ...read more.

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