Macroeconomic Analysis Narrative Essay Example

2005.

The rate of growth is expected to continue at its current pace throughout the first decade of the millennium. This prediction is supported by the fact that there have been no signs of economic recession or slowdown in the past five years. In fact, the country's annual GDP has increased from 12 trillion Rmb in 2001 to 18 trillion Rmb in 2005.

Based on the data provided, we can evaluate the past and future trends of the economy. However, when analyzing GDP growth, it is important to consider the various factors that contribute to this rate. Gross Domestic Product measures the productivity of an economy within a specific time period.

Communities need various factors to sustain productive behaviors. These factors include sufficient economic infrastructure development, supportive foreign trade policies, sufficient technological infrastructure, high employment, considerable monetary savings, and stable foreign exchange rates behavior. Infrastructure development is crucial as economic activities rely on the availability of local resources such as labor, raw materials, communication facilities, transportation, and financial services. A country with poor infrastructure is unlikely to attract business investors and achieve high productivity.

Creating and maintaining economic growth requires supportive foreign trade policies. International trade theories highlight the importance of cooperation with foreign investors, as no nation can rely solely on its own natural resources. Technology serves as a catalyst for efficient business operations and has become a valuable asset for multinational businesses. Notably, India's prowess in technology-related industries has attracted substantial foreign direct investment (FDI).

Having high employment rates is crucial for economic stability, as it indicates a stable social and economic environment that attracts investors. Countries with high employment rates are preferred by investors due to the

favorable conditions they provide for business investments (‘China Applauds’, 2006).

On the other hand, monetary savings also play a significant role in determining a nation's competitiveness compared to others. A country with substantial monetary savings has a considerable economic advantage over its counterparts. Additionally, the exchange rate serves as another indicator of stability. Following the Asian economic crisis, Western countries have become hesitant to invest in nations affected by this crisis.

These countries displayed unstable economic conditions, making it an awful investment environment.

Interpretations

Prior to 1986, the country experienced a double-digit GDP growth rate due to the cultural revolution and government-led foreign trade policy revolution in China. The first wave of foreign investment and the development of non-state enterprises contributed to this double-digit growth rate. The period of 1986 saw a continuation of this effect, with a slight slowdown attributed to an overheating economy. To curb the overheating economy, the government implemented policies in 1989 following an unsuccessful attempt at wholesale price reform in 1988.

The incident sparked panic buying and inflation, leading to a sudden surge in GDP growth. To stabilize prices, the government opted to cancel major investment projects and decrease domestic demand for goods and services. As a result, economic turbulence ensued, which was linked to the Beijing Massacre of 1989. A table illustrates a slowdown in national businesses, particularly those with foreign investments. By 1991, gradual economic recovery commenced as a consequence of harm inflicted upon the country's reputation. In an effort to restore international confidence in the economy, Deng Xiaoping made the decision to embark on a tour of China's Southern region in 1992.

The tour successfully accomplished a significant part of its goals, rejuvenating

global interest in the fast-growing economy. This resulted in a noticeable increase in foreign direct investment (FDI) inflow to the coastal regions of the country. In Shanghai, this economic transformation prompted substantial government investment to further enhance infrastructure for international investment. These governmental initiatives stimulated increased trade activities within the region, leading to growth and causing inflation ('Poverty', 2006). As a result, the economy once again became overheated. To address this issue, Zhu Rongji, the new leader of the country, implemented policies that would moderately reduce economic growth while still attracting foreign investors.

Despite a gradual decrease in economic growth, the GDP continues to contribute to the improvement of living standards for Chinese citizens. In the 1990s, living standards underwent significant enhancement, especially among urban residents. By the late 1990s, China's foreign direct investment (FDI) inflow had led to the establishment of highly regarded foreign exchange reserves globally. Nevertheless, doubts emerged regarding the reliability of China's GDP growth statistics after this exceptional period of expansion, prompting closer examination of the nation's overall national accounts.

China has allegedly manipulated data to exaggerate growth in the early 1990s and downplay growth in the late 1990s, possibly to present a stable and respectable image of the economy. However, some suggest that this issue arises from the statistical systems' tendency to overestimate output during the initial phase of accelerated growth and underestimate output at the end of the cycle (‘100m Chinese’, 2006). In 2005, there were signs that the GDP for that year had been significantly underestimated. Analysts suspected this occurred due to inadequate accounting for the impressive performance of the service sector ('Are China's FDI Figures Fudged?', 2005).

China's current average

annual GDP growth rate is approximately 10%. However, there are signs that the economy might be overheating because of a shortage of workers for new job openings. This doesn't mean that China has completely exhausted its human resources; rather, workers are unwilling to accept low wages due to improved living standards and economic conditions. Some experts predict an economic slowdown in China because of increasing labor costs and a decrease in labor availability (Bull, 2005). On the other hand, the Chinese economy has demonstrated strong household savings, indicating a robust economy. Nevertheless, concerns arise regarding potentially encouraging excessive investment through policies of low interest rates and high household savings (Bull, 2005). In conclusion, China has achieved significant and consistent economic growth from 1985 to 2005.

Despite fluctuations, the country experienced an average GDP growth of 9% over a 20-year period. Recently, the country has underestimated its own growth, leading to an understatement of GDP growth. In the early 1990s, there were suspicions that the country was overstating GDP figures, resulting in an overstatement of GDP growth.

Bibliography

1. 'Are China’s FDI Figures Fudged?'. 2005. New Economist. Retrieved February 12, 2007 from 'Are China FDI Figures Exaggerated'.
2. The Peking Duck. Retrieved February 12, 2007 from Pierre Bull's article. (2005).
3. 'A Short Run Macroeconomic Policy'. Retrieved February 12, 2007 from 'China GDP Statistic'.

The text below provides various sources related to China's GDP statistics:

Retrieved February 12, 2007 from http://www.econbrowser.com/archives/2005/10/china_gdp_stati.html 'China Applauds Technology Transfer to Alleviate Poverty'. 2006.

2007.

Bank Group. Retrieved February 12, 2007 from http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/CHINAEXTN/0,,c‘Poverty Reduction Remains Tough Job for Asia-Pacific Countries’. 2006.