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A Study of the Causes and the Effects of China’s Economy possibly becoming the next 10 Trillion Dollar Superpower

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Introduction

"A Study of the Causes and the Effects of China's Economy possibly becoming the next 10 Trillion Dollar Superpower." Chapter 1 - "Where China Stands." China is the country with the largest population in the world, at 1.2 billion people it accounts for more than a sixth of the human race. In an economic sense however China has always been somewhat of an underachiever. Its command economy structure has led to inefficiency and an incorrect mix of consumer and capital goods. Where in recent times the "Asian Tigers" have boomed, China it seems has lagged, with communism, poverty and an abysmal human rights record stunting economic growth. Until now, China has weathered the storm of the Asian financial crisis without much damage accrued. In 1979 it was decided by the Chinese government that there would have to be a radical overhaul of their economic system, progress has been very gradual but the results are plain to see. Statistics show that real GDP has risen at an average annual rate of 9.7% post-reform, with 1992 having the highest in China's history at 14.2% (Table 1). This is obviously very encouraging for the Chinese Government, due to the success of these measures they have taken further steps towards becoming a more free market economy. ...read more.

Middle

However the PPP is possibly unreliable due to the nature of China's developing economy, prices of many goods are distorted due to trade barriers, price controls and subsidies. Unfortunately it is the most accurate means available for comparison. These figures and more comparing China to Germany and Japan can be seen in Table 2. China's economy is confident, bankers and entrepreneurs feel that their country is booming. They think that by moving towards deregulation China's economy is showing leadership for a new era of powerful Asian world beating producers. This confidence is based around facts and figures that when the restructuring began the governments could only have dreamt about. Balance of Trade statistics are in huge surpluses, in 1998 as high as $43.6 billion. When compared with the late 1970's and the 80's the figures are even more impressive. The full table of figures can be seen as Table 3. A report published by the State Statistical Bureau (SSB) has commented that China's economy is bucking the trend in the year 2001. It is the world's fastest growing economy at 7.3%, however when put in to the perspective of the global and local economic conditions this is more impressive. ...read more.

Conclusion

This, argues Professor Lester Thurow from Michigan Institute of Technology, makes no sense. China claim Hong Kong as a "major engine for the economic development in South China." This of course contradicts and Thurow states "They can't both be right." He backs up his claim with comments on China's foreign trade, " China's foreign trade in the previous five years surged up and down violently but the economy maintained steady growth, which is suspicious." China's most recent official report forecasts that fiscal deficits in 2002 will be a record of about $37 billion. These huge deficits show us that despite the hype of a booming China the continuous economic growth is highly dependent on deficits to boost domestic demand and presents an image of false prosperity. As I move on to study China in more detail several questions must be asked.With the world economy now in trouble is there anyway for China to expand her exports so that she may grow strong enough to pay back the debts that may cripple the financial system? Will China do as The World Trade Organization's next director-general Supachai Panitchpakdi predicted by "speeding up reforms in economic, legal, administrative and other sectors." And does "The WTO entry signaled China's willingness to play by international trade rules and bring its economy into harmony with the world." ...read more.

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