Question

In: Economics

One good source of summary economic data on various nations is the CIA website. Please visit...

One good source of summary economic data on various nations is the CIA website. Please visit the site, and click on the “World Factbook” link. Use the scroll-down menu in the factbook page to look at data on China. Once on the China page, click on the “Economy” button and read the summary description of China’s economy.
Apply the “economic system” concepts of Chapter 1: China has been shifting from what economic system to what system?
Cite the phrases or sentences in the CIA’s summary that indicates to you that there is still a significant element of socialism in China.

Solutions

Expert Solution

Since the late 1970s, China has moved from a closed, centrally planned system to a more market-oriented one that plays a major global role. China in 2016 stood as the largest economy in the world, surpassing the US in 2014 for the first time in modern history. China became the world's largest exporter in 2010, and the largest trading nation in 2013. Still, China's per capita income is below the world average

After keeping its currency tightly linked to the US dollar for years, China in July 2005 moved to an exchange rate system that references a basket of currencies. From mid-2005 to late 2008, the renminbi appreciated more than 20% against the US dollar, but the exchange rate remained virtually pegged to the dollar from the onset of the global financial crisis until June 2010, when Beijing announced it would allow a resumption of gradual liberalization. From 2013 until early 2015, the renminbi (RMB) appreciated roughly 2% against the dollar, but the exchange rate fell 13% from mid-2015 until end-2016 amid strong capital outflows in part stemming from the August 2015 official devaluation; in 2017 the RMB resumed appreciating against the dollar – roughly 7% from end-of-2016 to end-of-2017. From 2013 to 2017, China had one of the fastest growing economies in the world, averaging slightly more than 7% real growth per year.

The Chinese Government faces numerous economic challenges including:

(a) reducing its high domestic savings rate and correspondingly low domestic household consumption;

(b) managing its high corporate debt burden to maintain financial stability;

(c) controlling off-balance sheet local government debt used to finance infrastructure stimulus;

(d) facilitating higher-wage job opportunities for the aspiring middle class, including rural migrants and college graduates, while maintaining competitiveness;

(e) dampening speculative investment in the real estate sector without sharply slowing the economy;

(f) reducing industrial overcapacity; and

(g) raising productivity growth rates through the more efficient allocation of capital and state-support for innovation.

In 2016, China ratified the Paris Agreement, a multilateral agreement to combat climate change, and committed to peak its carbon dioxide emissions between 2025 and 2030.The government's 13th Five-Year Plan, unveiled in March 2016, emphasizes the need to increase innovation and boost domestic consumption to make the economy less dependent on government investment, exports, and heavy industry. Chinese leaders in 2010 pledged to double China’s GDP by 2020, and the 13th Five Year Plan includes annual economic growth targets of at least 6.5% through 2020 to achieve that goal.

A significant portion of the Chinese economy is still government-controlled, although the number of government programs has declined significantly. Universal health care, for example, is being discontinued. China's foreign policy continues to be pro-socialist, but it has essentially become a free-market economy. In essence, China no longer remains a “pure socialist economy."

Interestingly, the privately owned firms reportedly generate a substantial portion of GDP for China (figures vary from 33% to 70%, as reported by various news sources). After the U.S., China is the second-largest economy in the world, and the number-one largest manufacturing economy.

How has China managed to grow its economic influence?


Effectively, China pulled this off by transitioning from a “socialist economy” to a “socialist market economy.” The communist regime in China quickly realized that it would be to its disadvantage to keep China's economy secluded from the rest of the world. It has been able to successfully strike a balance between the “collective” and “capitalist” approach. Policies allow entrepreneurs and investors to take profits, but within the controls of the state. Around 2004, the government began to allow a person’s right to private property. Establishing a special economic zone and opening up to international trade have allowed the country to embark on fast-paced economic growth – all courtesy to the right changes to the socialist policies at the required time.



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