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China, as a crucial country in the world, is suffering from a variety of costs of economic growth while the economic growth is incredibly fast in recent years.

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FOUNDATION ECONOMICS ASSIGNMENT III 2004-2005 GROUP G VICTOR .I. China, as a crucial country in the world, is suffering from a variety of costs of economic growth while the economic growth is incredibly fast in recent years. A division between rich and poor, unemployment, and various external costs, unbalance of payments, unstable exchange rate consumption of non-renewable resources and the risk of inflation and banking collapse have been the common social problems in China. There is a huge gap between the rich and poor people in China. "The top 5 and 10% of earners in China accounted for 19.8% and 31.9% of the country's revenue" (by Richard Spencer in "The Daily Telegraph" published in February 27th 2004). Some people enjoy high quality of living in rich metropolitans such as Shanghai. In contrast, in the poor rural areas, people seek a job in the big cities, so they cannot take care of their children; the children cannot even have an opportunity to receive education, and some of them have been suffering from starvation and diseases. As a consequence, the poor are left behind, which means rich people become richer as poor people remain poor. A lot of people now have a risk of unemployment in China, because more and more hi-tech equipment is being used to replace the human-labour, in addition, Chinese population is much more than existing working vacancies there are not enough existing working vacancies to cope with the ever rising Chinese population. ...read more.


To produce more and more commodities, firms will utilise more and more capital resources, however some of them are non-renewable. "There is an insatiable demand for coal in China to feed the rapid economic growth in the country." (By Peter Goff in the "the Sunday telegraph" published in Feb. 20th. 2005). Therefore, the shortage of fossil fuels will cause a recession of economy of China in the long run. Because of the swift economic growth, the demand-pull inflation and collapse of the banking system will easily emerge as the economy seems to be overheating in China. In Chinese market, there is a common phenomenon that the consumers want to buy any thing that they have seen. This will cause a rapid increase in aggregate demand from AD1 to AD2; as a result inflation will emerge. ------------------------------------- In conclusion, the Chinese government should consider the costs of economic growth, i.e. a divided between rich and poor, mess unemployment, the various external costs, unbalance of payments, consumption of non-renewable resources and the risk of inflation. These problems have potential risks; they could make bring the Chinese economy be at to a standstill in the future. .II. To maintain the present positive aspects of economic growth and solve the problems it brings to us, the Chinese government should adopt some effective policies. ...read more.


In this case, the government should use legislative measures to grant the workers legal protection based on human rights. In addition, the government should set a law of preventing big consumption of recourses esp. non-renewable recourses to leave a sustained development for the next generations. Furthermore, the Chinese government would better utilise unified leadership and decentralised management, which mean to set a motive collectively but allow the local state organs to set its own rules separately, because different region could have different economic situation such as a wide gap between the rich and the poor. By using trade policy, the Chinese government should increase the currency exchange rate to balance the payments, which means let imports equal to exports. However, nowadays, Chinese Yuan is suffering from devaluation which is due to it pegged to the falling U.S. dollar. Therefore, to solve this problem would be very complicated. In conclusion, Chinese government has faced a lot of problems of economic growth, which compel it to adopt some effective policies. Monetary policy, fiscal policy, direct policy and trade policy are effective in different aspects. However, the precondition is to avoid inflation in this fast economic growth. Reference: Warner, Jerry "handouts and notes" 2005 Anderton, Alain <Economics 3rd edition> 2003 Spencer, Richard in "the Daily Telegraph" published in Feb. 27th.2004 Spencer, Richard in "The Daily Telegraph" published in Nov.2004 Goff, Peter in the "the Sunday telegraph" published in Feb. 20th. 2005 ...read more.

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