Government Planned To A Free Economy †Free Samples For Students

Question: Discuss About The Government Planned To A Free Economy? Answer: Introduction China has had an outstanding period of rapid growth since it changed from a government planned to a free economy. It is currently an upper middle-income country with compound development needs where the Bank is playing a critical role. By 2015, China had accomplished the Millennium Development Goals (MDGs) and played a central role in the achievement of the MDGs across the globe. With a populace of approximately 1.3 billion, China has the second biggest economy and is performing an indispensable role in the development of the world economy(The World Bank, 2017). Chinas top industries incorporate mining and ore processing, cement, textiles and apparel, machine building, chemicals, and petroleum. Electrical machinery, furniture, and industrial machinery are some of China's top exported goods with United States, Japan, and Hong Kong being the top trading partners(Globaledge, 2017). Despite rapid economic development, the countrys GDP per capita is still below the global standards. Other notable issues facing China include rapid urbanization, an aging population, and challenges to environmental sustainability(Cui, 2017). Therefore, this paper explores the economic progress of China between 2000 and 2016. Key economic indicators analyzed include the GDP growth rate, unemployment, GDP per capita and inflation. Production Output Performance Analysis Gross Domestic Product Gross Domestic Product is a measure used to assess annual variations in the inflation-adjusted prices of the total commodities created in an economy. It is a full appraisal of economic development and a vital indicator of the health of an economy over the short term and long term. Since the Gross Domestic Product depicts the economic progress of a country, it permits the policymakers to establish whether an economy needs a restraint or boost(Goodwin, Nelson, Harris, 2014). GDP Growth Rate GDP growth rate refers to the yearly percentage fluctuations in the Gross Domestic Product of a nation. This measure is one of the instruments used to understand if the countrys economy is expanding or deteriorating. Additionally, the investors depend on the GDP growth rate to adjust asset allotment in their portfolios(McTaggart, Findlay, Parkin, 2015). Those economies whose GDP growth rate is stable are known to attract more investors for their stocks and corporate bonds. Chinas GDP Growth Rate (2000-2016) Chart 1: Data retrieved from The World Bank On the graph one above, it is clear that China has recorded a remarkable economic growth. Before the global economic and financial crisis of 2008-2009, China's economy grew steadily and managed to reach 14.23% in 2007. However, on the onset of the financial crisis, the countrys economic growth rate reduced to 9.65% in 2008 and further dropped in 2009 to 9.40%(The World Bank, 2017). Although many economies across the globe such as Japan and Singapore went into recession during the global financial crisis, China managed to escape this economic downturn. Chinas ability to avoid the recession is associated with several factors. Foremost, China went into the crisis in an entirely unique position compared to other economies. For instance, the country was having a budget surplus and had been increasing the interest rates to scale back excessive growth. The financial institutions in this country had restricted consumer spending and excessive credit. Moreover, when the crisis began, the Chine se government adopted aggressive monetary and fiscal stimulus which played a vital role in re-accelerating the economy. The government lowered the interest rates, relaxed restrictions on credit and increased government expenditure with the view of boosting household consumption(Xu, 2016). Since the Great Depression of 2009, China's economic growth has remained above 6.70%. This outstanding growth is as a result of sound government policies. GDP per Capita Analysis GDP per capita is an economic measurement that depicts the economic output for every person in a country. This analysis distributes the Gross Domestic Product with the overall population in an economy. Hence, GDP per capita provides an excellent estimate of the living standards of people in a given country. Additionally, GDP per capita is used by economists to compare the strength of different economies all over the world(Sloman, Wride, Garratt, 2015). In most cases, the advanced economies have higher GDP per capita than the less developed and developing countries. Chinas Versus Australias GDP Per Capita (Constant 2010 US$) Chart 2: Data retrieved from The World Bank The chart two above displays the GDP per capita of China and Australia between 2000 and 2016. It is evident that Australias GDP per capita significantly surpasses that of China. For example, in 2016, China's GDP per capita stood at 6,894,464 U.S Dollars while that of Australia was 55,670,924 U.S Dollars(The World Bank, 2017). This scenario shows that the residents of Australia have higher living standards than that of Chinese. It can also be noted that the GDP per capita of both nations is increasing gradually and hence continued improvement in their living standards. Government Measures to Accelerate Economic Growth Infrastructure Development The expansion of infrastructure in China has always been the central focus for the leadership in the economic enhancement initiatives. The fundamentals under which additional infrastructure is being constructed incorporates guaranteeing sustained fast economic increase with airports, roads, energy, water, railway, and rural projects receiving considerable investment. The unrelenting expansion of city-wide metro networks and high-speed rail are prime instances of China's aspirations to boost its transport systems further to profit the wider economy(Shiu, Li, Woo, 2016). Tax Incentives for Small Businesses In the recent years, the Chinese government has been issuing tax breaks to small enterprises with a view of reducing the corporate burden to support economic progress. For instance, from 1st January 2017 to 31st December 2019, the small ventures with a yearly taxable income that does not exceed 73,599 U.S Dollars will be entitled to tax preferences. During this period, the small businesses that are eligible will have their corporate income tax base reduced by half with a tax rate of 20%(Cui, 2017). Moreover, the government is continually streamlining the tax structure to establish a simpler and a more transparent tax system. Improving Education and Training Better education and training are vital for the growth and improvement of the economy, especially over the long term. Education avails the required human resource to provide labor and stir the productivity of the country. As a result, the Chinese government gives priority to education and training in its development strategy. The government is persistently investing in learning, research and development to enhance efficiency in the economy and stimulate economic growth and development(Cui, 2017). Labor Market Analysis Meaning and Types of Unemployment The term unemployment is used to refer to a state where eager and able to work persons are incapable of finding employment at the existing wage rate. Unemployment is an issue not only among less developed economies but also in rising and higher economies. The typical types of unemployment in an economy include frictional, cyclical, and structural unemployment(Goodwin, Nelson, Harris, 2014). Frictional Unemployment Frictional unemployment arises in a country when recruits are moving between jobs or when fresh graduates enter the labor market and remain jobless for some time before securing employment. Frictional unemployment often last for a short term and is a natural part of job search(Goodwin, Nelson, Harris, 2014). Also, this kind of unemployment is facilitated by the lack of perfect information in the labor market and exists in all countries. Structural Unemployment Structural unemployment results from structural changes. When modifications take place in the formation of an economy can cause skill discrepancy and therefore structural unemployment. The mechanization of duties at the place of work is known to result in this type of unemployment as machines replace the use of human labor(Goodwin, Nelson, Harris, 2014). In such circumstances, the affected workers find it difficult re-employed unless they are retrained. Cyclical Unemployment Cyclical unemployment is an unintentional category of unemployment that is caused by too little demand for products in an economy. This unemployment is occasionally called Keynesian demand deficient unemployment(Goodwin, Nelson, Harris, 2014). It often occurs during recessions when firms close down or lay off some workers. Chinas Unemployment Trend Chart 3: Data retrieved from The World Bank From 2000 to 2007, the unemployment rate in China declined gradually. In 2000 unemployment was 4.53% whereas in 2007 the unemployment stood at 3.76%. However, on the beginning of the worldwide financial crisis, the unemployment started rising. In 2008 and 2009 the unemployment was 4.36% and 4.29% respectively. Since then, unemployment has ranged between 4% and 4.6%(The World Bank, 2017). Government Measures to Curb Unemployment Support for Small and Medium Sized ventures The small and micro businesses play a significant role in accelerating employment creation, improving economic expansion, and scientific innovation. As a result, the Chinese government is actively supporting the expansion of SMEs. The support focuses on the healthy development of SMEs from several aspects such as finance, human resources development, funding, taxation, innovative development, and market exploration. For example, Peoples Bank of China has been guiding the financial institutions to expand to the SMEs(Cui, 2017). Developing the Service Industry Due to the importance of the service sector in an economy, the government of China has put in place measures to boost this particular industry. For instance, in 2013, the government issued a policy for enhancing senior services, promoting the integrated improvement of creative and cultural industries as well as promoting information consumption to inspire domestic demand(Cui, 2017). Strengthening Public Employment Service Public employment service plan focuses on availing an equal access to public occupation services for both the rural and urban people as well as free job services to laborers. Besides, the government agencies hire the services of professional intermediaries and support them to provide employment services through occupation referral subsidy. Price Level Analysis Meaning and Roots of Inflation Inflation refers to the continual rise in the general prices of commodities in an economy. Cost-push and demand-pull influences usually cause inflation. The cost-push factors include those influences that make the cost of doing businesses to shoot up. For example, an increase in the cost of labor and other key inputs like oil leads to cost-push inflation. Demand-pull inflation is caused by those incidences that increase the amount of money in circulation. Some of these incidences include that cause demand-pull inflation incorporates purchase of government bonds, reduction in the interest rates and growth in public expenditure(Sloman, Wride, Garratt, 2015). Chinas Inflation Trend Chart 4: Data retrieved from The World Bank In 2000 and 2001, China registered low levels of inflation, that is, 0.26% and 0.72% and then went into deflation in 2002 (-0.77). Between 2003 and 2008 the inflation in this country remained below 6% before going into deflation again in 2009 due to the effects of the Great Depression. Since then, the inflation in China has been maintained below 6% with 2015 recording the lowest rate, 1.44%(The World Bank, 2017). Government Measures to Attain Stable Prices The Chinese government often combines monetary and fiscal policies to curb inflation. When inflation rises above the target, the government makes use of contractionary policies. For instance, the government can increase the interest rate, reduce its expenditure or sell government assets to shrink the amount of currency in circulation. On the other hand, when inflation is very low, the government deploys expansionary instruments(Xu, 2016). For example, the government may raise the interest rates, buy government assets or reduce its expenditure. Conclusion China has the second leading economy and is undertaking an essential role in the improvement of the global economy. Since 2000, China has registered a remarkable economic growth untouched by the recession. Aggressive monetary and fiscal stimulus which the government initiated during the 2008-2009 global financial crises played a vital role in re-accelerating the economy, and thus China avoided an economic downturn. Chinas unemployment rate has been below 5% with relatively stable prices. However, China's GDP per capita is still below the global standards. Some of the measures the government has put in place to boost economic growth and increase employment creation include infrastructure development, providing tax incentives for small businesses and developing the service industry. Finally, monetary and fiscal instruments are deployed to guarantee stable prices. References Cui, W. (2017). Social Trust, Institution, and Economic Growth: Evidence from China. Emerging Markets Finance Trade , 1243-1261. Globaledge. (2017). China: Economy. Retrieved August 10th, 2017, from Globaledge: https://globaledge.msu.edu/countries/china/economy Goodwin, N. R., Nelson, J. A., Harris, J. (2014). 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