Chinese Economic Growth Essay Essay
Economic Growth and what this means for Chinese Productive Capacity. Economic Growth can simply be defined as the growth in the productive potential of the economy over a given period of time. It is typically measured by growth in the real GAP. Economies are constantly changing over time for a variety of reasons. Part of the change involves fluctuations in the productive capacity, the ability to produce goods and services. Increases in the productive capacity are known as Economic Growth.
One of the main components that economists can use to demonstrate and discuss economic growth is the Production Possibility Frontier. The APP (Production Possibility Frontier) will exhibit the maximum or potential output of an economy, when the economy grows, the APP will move outwards. The diagram on the left shows a typical APP curve, as you can see a shift outwards demonstrates economic growth. This type of diagram can be used effectively to exhibit the kind of economic growth that the Chinese economy has been seeing since 1978.
A more detailed explanation of the prominent causes for economic growth would attribute it to the following factors, land, labor, capital and enterprise. National output can be increased if there is an increase
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An example of a country experiencing sustained and accelerated economic growth as a result of unrelenting use of natural resources is Saudi Arabia who without the large oil reserves located within the country would almost certainly be a deprived country. Countries throughout history have cashed in on their resources. In the sass’s the United Kingdom exploited their oil and gas reserves. It is generally agreed amongst economists that the exploitation of raw materials attributes to a small factor in economic growth; however it can be vital in developing countries growing.
In China today signs of the exploitation of natural resources can clearly be seen as they help to fuel the growth of the economy. Labor, the second to the doctors to production is also vital in growing the economy. Increasing the number of workers in an economy should lead to a larger productive capacity; this can result from three main factors. The first is a change in the demography, if more young people Join the workforce than the old who are leaving it, the size of the workforce will increase leading to a higher levels of productivity being seen from the economy.
In most western, developed countries the age of the population is generally well distributed meaning that the workforce stays the same size and is at a stable level. The second factor which can increase the size of the labor force is an increase in participation rates. In all economies, the majority of men who wish to work are in the labor force; however in developed countries there are far more employment opportunities open to women who could be brought into the labor force if employment opportunities arise.
Finally immigration is a relatively easy way of increasing the labor force. Employing migrant workers may increase output, but will not necessarily increase economic welfare. In employing migrant workers, the increased income is being shared by a larger number of people, meaning that economic welfare is not increased. Increasing the quality of labor input is likely to be far more important in the long run, as in doing this economic welfare will not suffer as it does with an increase in the workforce. Labor is not homogeneous in the sense that it is not all the same.
Workers can be made more productive, (thus increasing the quality of labor) through education and training. Increases in human capital are essential for a variety of reasons if an economy is aiming to achieve sustained economic growth. To begin with workers need to be sufficiently educated to cope with the demands of the existing stock of UAPITA. Some extremely elementary skills are needed from the workforce to operate at a level where productivity is at its optimum, however in order to get the population up to the necessary standards education and training must be offered.
Workers must also be flexible and adaptable in order to reach the productive capacity, research shows that workers are being asked to change Jobs three times in their lifetime. In order for this level of versatility to be feasible, the workforce must obtain a wide range of in-depth knowledge. Finally workers must be able to contribute to change for an economy to reach its optimum level of output. What is essential for an economy is that workers are able to contribute ideas to the improvement of techniques of production.
Capital is the third factor of production, and is a vital aspect in achieving sustainable economic growth. The stock of capital in the economy needs to increase over time if economic growth is to be sustained. This means that there must be consistent investment in the economy. However there is not necessarily a link between high levels of investment and high levels of growth. Much investment in economies is not growth related, for example housing and healthcare. Investment can also be wasted if it is targeted at industries which fail to make profit.
Investment must therefore be targeted at growth industries. Enterprise is the final factor of production, this essentially is the skill of combining the three other factors of production, this is generally undertaken by entrepreneurs who set up and run business enterprises. This gives a tartly detailed account and overview to what economic gar n is, and what it consists of. However what does this mean for Chinese productive capacity? In 1978 China saw the end of state control of all aspects of production in the economy.
The economy witnessed a major program of economic reform in an effort to reach the productive capacity that the country could potentially attain. This included the formation of rural enterprises and private businesses, liberalized foreign trade and investment, relaxed state control over some prices, and investment in industrial production and the education of its workforce. China began to take all the steps mentioned in the description of economic growth provided above, and adhered to the factors involved in reaching sustained economic growth and increased productive capacity.
The statistics show Just how enormously the Chinese economy had grown following the economic reforms, and also how the productive capacity of the economy was a seemingly endless mark. Pre-1978 China had seen annual growth of 6 percent a year; in contrast post-1978 China saw average real growth of more than 9 percent a year. In several peak years, the economy grew more than 13 percent. Per capita income has nearly quadrupled in the last 15 years, and many economists are even predicting that the Chinese economy will be larger than that of the United States in about 20 years.
As you can see from the statistics, the more emphasis on economic growth that the government is placing, the further the productive capacity moves, reforms are constantly being made by the Chinese government to ensure that the country is able to produce more and more, in its bid to become the ultimate economic powerhouse. Although the growth in the country’s stock of capital assets, such as new factories, manufacturing machinery, and communications systems was important, as were the number of Chinese workers, a sharp, sustained increase in productivity was the driving force behind the economic boom.
It is higher productivity that has performed this economic boom in the Chinese economy. Chinese productivity increased at an annual rate of 3. 9 percent during 1979-94, compared with 1. 1 percent during 1953-78. By the early asses, productivity’s share of output growth exceeded 50 percent. This enormous growth in productivity is remarkable; in the U. S. Productivity growth rate averaged 0. 4 percent during 1960-89, a notable period of economic growth in the United States. This contrast in figures is huge; it is also desirable for China as productivity-led growth is more likely to be sustained.
In conclusion the future seems to be extremely promising for the Chinese economy and the productive capacity of China in particular. The capacity at which China can produce is likely to keep on rising as a number of factors have created a situation where the economy is investing more than ever in capital assets, has a larger workforce than any other economy in the world, is exploiting the sumptuous natural resources in the country and is experiencing desirable productive TTY-led growth The huge boom that China has been experiencing since 1978 can be used as an example to other developing countries.
One of the most important lessons that can be learnt from the Chinese example is that while capital investment is crucial to growth, it becomes even more important when accompanied by reforms that introduce profit incentives to rural enterprises and small private businesses. For countries with a large segment of the population underemployed in agriculture, the Chinese example may be particularly helpful. By encouraging the growth of rural enterprises and not focusing exclusively on the urban industrial sector, China has successfully moved millions of workers off farms and into factories without creating an urban crisis. Evaluate the factors that have led to Chinese Economic growth In general the real economic growth that China has been experiencing can be traced back to 1978. In 1978 the economy was subject to some enormous changes as it moved from a planned, state-controlled economy to a far more capitalist style free- market economy. The changes that have sparked the economic boom which has been seen over the last 30 years can be linked to a series of main factors.
To begin with the reforms encouraged the formation of private businesses as opposed to the state controlled industries it had previously advocated, China also rated foreign trade links and attracted international investment. The state also stopped setting prices for things, allowing the free-market and the invisible hand to determine supply and demand. However possibly the most influential step that the Chinese government took was to focus investment on capital goods as opposed to consumer goods in order to sustain the economic growth.
China also focused heavily on the education of its huge workforce. To date the strategy taken by the Chinese government has clearly had startling results and has managed to awake a sleeping ant in the form of the Chinese economy. Previous research on the economic development of any economy has paid most attention to the role of capital investment in economic growth. It is fair to say that that a notable percentage of the growth that China has enjoyed over the last 30 years can be credited to capital investment.
In basic terms, increased technology, machinery and investment in infrastructure have together raised output. However, although the capital stock grew by nearly 7 percent a year over 1979-94, the capital- output ratio has shown no signs of an increase or decrease. In other words, despite huge expenditure on capital, production of goods stayed about the same, this is a sign of an underdeveloped country, and it is possible that the machinery being used was old and worn. The labor input, an important and vast resource in China also saw its contribution to overall economic growth decline.
In conclusion, while capital formation alone accounted for over 65 percent of pre-1978 growth, with labor adding another 17 percent, together they accounted for only 58 percent of the POS -1978 boom, a decline to almost 25 percent. Productivity increases made up the rest. It is therefore clear that it is not the large labor force, of which one in every four people in the world is Chinese, or the increase in expenditure on capital investment that has triggered the huge economic growth, it is in fact higher productivity levels and a higher productive potential that has ignited the boom in the Chinese economy.
The reforms of 1978 increased economic efficiency by creating profit potential to family farms, small private businesses, and foreign investors and traders. They also gave many enterprises’ more space and freedom from the previous constant government intervention that they had suffered from. As a result, the reforms of 1978 showed immediate signs of the economy moving to a much more free-market style. The output of state-owned enterprises declined from 56 percent of national output to 40 percent, and that of private businesses and Joint ventures rose from 2 to 10 percent, within a year of the reforms taking effect.
The new profit incentives appeared to have had a further positive effect in the private capital market, as factory owners and small producers eager to increase profits devoted more and more of their firms’ own revenues to improving business performance. The reason for this as the larger proportion of profits that the company owners were now eligible to retain for themselves. In the years prior to the reforms of 1978, the factory owners would have been forced to give a larger percentage of their income to the government.
This is a clear sign of the end of the restrictions on companies leading to economic growth in the Chinese economy. One of the most notable factors that have helped stimulate the sustained economic growth in China is the investment from foreign multi-national enterprises. With the economy of China growing at an astronomical rate, not to mention the huge Rockford in place, China has quickly become an attractive new economy for the big One’s. Many have not only begun marketing to the Chinese population, and opening up in China itself, but many are also beginning producing their products from China.
The reasons for this are the low labor costs that China offers; this can in turn lead to companies cutting costs by huge figures. It is quite remarkable to what extent the economic reforms boosted productivity, to a level never before seen by any economy; it is especially interesting when government intervention was still extensive compared to most other economies, (although the extractions from governments were far less than what they were prior to 1978).
One of the industries focused most on by the Chinese government was the agriculture industry. Before the 1978 reforms, 80% of the Chinese workforce were employed in agriculture, in contrast in 1994 that figure was down to 50%. One of the main results of the reforms is that they began a trend of individuals setting up non-agricultural businesses in the countryside. Higher prices for agricultural products forced farmers to be more productive, and make more efficient use to their labor.
These changes imbibed forced many workers to move away from the agriculture sector and into various other businesses that were opening in their local area, and this is the reason for the shift working without any controversy. The workers were able to leave their jobs and find new ones without having to leave their homes, had they been forced to move into cities there may have been some uproar, but the ability for former farm workers to leave Jobs and find new ones in their own villages was ideal.
The rise in the manufacturing industry was also far more valuable to the Chinese government than farming ever was. In addition, the post-1978 reforms allowed greater independence to enterprise managers. They became more free to set their own production targets, sell products in the private sector at competitive prices, grant bonuses to good workers and fire bad ones, and preserve some fraction of the firm’s income for future investment. In turn businesses were set up; these created Jobs, increased consumption and had various other effects that led to extended economic growth.
Regarding the final aspect, price reform, the Chinese government have acted prudently, allowing a fair amount of independence to producers of consumer goods ND agricultural products but far less to other industries. Many cases of inflation have dogged the Chinese economy in the past three decades, making the government skeptical of brining in full-scale price liberalizing. High rates of growth are likely to raise inflationary worries in any economy. Inflation is likely to be the only real threat that is likely to slow down Chinese economic growth or bring it to a halt.
The reforms of 1978 were the main basis that the huge economic growth of the following 30 years was founded upon. However there are more simple reasons, which can be seen in any economy that experiences sustained growth. For example the following aspects of the Chinese economy in the last 30 years have all contributed to the economic growth it has enjoyed, positive multiplier effects, higher levels of employment, larger consumption levels, increased saving and higher aggregate demand to name but a few.
It is clear that the reforms of 1978 had enormous effects of stimulating and creating economic growth in the Chinese economy, and in my opinion these were the main factors that have led to the economic growth that China enjoyed over the next 30 years. I feel that in general these reforms were the basis for the other more common actors of economic growth to take place. The reforms created an ideal situation for China in which productivity-led economic growth helped to magnify the other more familiar factors of economic growth. , Comment on what Chinese Economic Growth means for the environment It goes without saying that the effects of the sustained and increased economic growth that China is enjoying and has been in enjoying for the last 30 years has had and will continue to nave detrimental detects on the environment. The effects that the huge increase in economic growth, and the negative effects that t will have on the economy is more linked to the increased levels of output that will be seen as the economy grows. Heavy industry is likely to increase in any economy during a period of economic growth, especially in China during this time.
Many of the problems that this creates include the natural resources that the economy will now rely on to fuel the boom, the huge rise in automobile usage and not to mention the visual pollution that the erection of thousands of new factories will cause. These reasons are Just a few in a very long list of negative effects that the huge economic growth that China is enjoying will cause. The real dilemma and debate, comes when attempting to restrain and constrict the damage that China is causing to the environment.
Many would argue that China should have tougher restrictions in place in order to limit the building of factories; however Chinese government and population would claim that it is unfair to harm their economic growth. It may seem bad luck for China that other developed economies have been free to grow without any attention paid to the environmental effects. For example during the industrial revolution, in which the I-J economy became one of the world leaders there was no controversy over the environmental impacts, the same can be said for the USA in the asses when they enjoyed great economic growth.
The question is, is it unfortunate that China is growing at a faster than it has ever seen at the same time that the states of the environment becomes a pressing issue, or are the two events linked, and the Chinese growth is causing the negative effects on the environment? The general feeling is that it is extremely unfair and hypocritical for the I-J or any other developed economy to demand China slow down its economic growth in order to save the environment. This is because the developed economies have all experienced sustained periods of economic growth, such as China is enjoying now, in the past.
Therefore the debate becomes very awkward for the western, developed countries to focus on. On one hand the issue of the environment, and the concerning news stories such as global warming, and on the other they have China, a developing superpower that are unlikely to be stopped in their tracks in order to save the environment. Whether China slows its economic growth in order so save the global environment, and the environment within China, the problems that it will face from the boom in economic growth and output will still exist to an extent.
These problems have been affecting China for the last 30 years, since the boom really began, and the results are clear to see in statistics. To begin with, the pollution that has resulted from the economic growth has made cancer the leading cause of death in China. In more developed economies, research is constantly being carried out into the causes and effects of cancer, however in a less developed or developing economy such as China, this research has never been carried out.
This almost makes Chinese workers unaware and ignorant towards the threats TN they tact to their health as their country grows. Cancer is killing millions of the Chinese workforce every year, and air pollution alone was the cause of death of hundreds of thousands of the Chinese population in the past few years. Other concerning statistics include 16 of the 20 worlds most polluted cities are located in China, further evidence that restrictions are not in place to contain the pollution that is an inevitable result of prolonged economic growth.
Similar research has shown that only 1 percent of Chinas 1. 6 billion population breath airs considered fee by the European Union, also in over 50% of days per year, Chinese urban air is toxic grey smog. Chinas coastline, rivers and lakes are becoming increasingly pollutant-ridden all year round. The statistics and facts from the research carried out show that as China enjoys its economic growth, its environmental impact is devastating both in China and on the world in general. An alternative way of viewing the huge environmental impacts is to see it as an opportunity cost of economic growth.
The Chinese government have opted to enjoy output and productivity-led economic growth, as opposed to enjoying a healthy environment. The Chinese population clearly view enjoying the new-found prosperity as a more desirable aspect of their lives than a clean and healthy environment. The decision affects living standards, and ties in with the problems we face when gauging living standards. Although the National Income Statistics would demonstrate a huge leap in the living standards enjoyed by the Chinese population, in reality the environmental effects of the economic growth may actually cause living standards to fall.
An example of this is that nearly 500 million Chinese people do not have access to clean drinking water. A shocking statistic when you consider that China is one of the economic powerhouses of the world. An additional strain on the environment that the Chinese growth will have is the huge demand for oil that the Chinese economy will demand as it grows. This will come from the rise in automobile owning from Chinese citizens and also the oil needed to fuel the heavy industry.
In the last few years the real problems that using fossil fuels such as oil and gas bring have come to the forefront of environmental issues. Alternative methods of creating power are being used in the developed world. However it is unlikely that China will invest in alternative energy sources, as it is happy to use the energy sources already on offer to power its economic growth. At a time when oil is in great shortage, and prices are rising globally, this will have increased negative effects on the environment.
In conclusion I feel that the Chinese people have made a decision that the huge economic growth and prosperity that they are enjoying is more important to them than the state of the world environment. It seems a miniscule issue when the huge economic growth is compared against it. I also feel that there is very little that any there nation can do to stop the negative effects Chinas growth is having on the environment as in order to reach the developed status they have acquired, those countries will nave and to go through the same process that China is going through at the moment, although in most cases to a lesser level.
One final important point that I feel is notable is the clear sign that the Chinese impact on the environment is only going to continue, and have more negative effects. The evidence in the accompanying graph shows Just how much CO China emits each year, and how they will continue this into the year 201 5, at an ever increasing rate.