The economy of the Republic of China - Essay Example

How Successful Has the Government and the Central Bank Of China Been In Running Its Economy over the Last Two Years? The economy of the Republic of China has been growing extraordinary over the past ten years raising concerns from economic experts of the effects that will result when the growth rate decreases. China is a manufacturing hub for the entire world it is the largest manufacturing economy as 45% of the total exports of goods originates from there. The population of the country is one of the elements that has enabled the prosperity in manufacturing since a cheap pool of labour is readily available thus firms have to cut operational cost while conducting business there. Currently, China is the second largest economy in the world based on GDP as indicated by statistics from IMF (Knight and Ding, 2012). However, despite the prime position that the Chinese economy is holding it is still developing and thus the immense growth rates that are being witnessed are as a result of catching up with other developed economies for instance USA that are its main trading competitors. The competition between China and other developed economies has seen the government implement a policy to advance significant amounts of capital to third world countries to spur economic growth and in return those countries to partner with China in trade. The amount of grants and loans that China has extended to developing nations especially in Africa are of the excess of $ 100billion mainly funding infrastructural projects (Ming, 2012). Extending loans to these countries is a strategy that China implemented to assist those nations in their development path while at the same time strengthening their trade ties to boost China’s exports to them. The strategy has proved effective as China has managed to increase its trade volumes primarily exports by 11% in the past two years with a significant percentage going to its development partners. It has worked to enhance China’s competitive advantage in global trade as it is capturing markets that were previously dominated by economic powerhouses such as; USA, Germany, France and UK. The key factor that has ensured China maintains its growth path for that long is the kind of political regime that is governing the republic. The political system of governance in China is repressive in nature whereby the state has total authority over all the financial operations in the country. It has ensured that the resources in the nation are well galvanized to ensure they are projected towards the interest of the state and, in this case, to spur economic growth. However, the same regime has been put into the limelight by Western media of its unethical practices especially in trade operations. China is accused of undervaluing its currency to ensure its local companies receive undue advantage over their competitors in the global front. Locally the state runs almost 60% of the manufacturing firms; those enterprises are often favoured to ensure they are advantaged over private companies in terms of government regulation and other elements (International Economic Association, Aoki and Wu, 2012). Economic analyst and policy makers at the People’s Bank of China have been working to come up with an elaborate strategy that will see the country make a ‘safe landing’ once its economic growth rate subdues. It is a mitigation effort that is meant to prevent the nation from past economic catastrophes that had hit it back in 1985-1989 and 1992-1994 when the constant growth that China was undergoing drastically dropped thus affecting the economic system with massive inflation (Knight and Ding, 2012). It is prudent that trade in the modern world is market-driven; The Chinese government is relaxing its grip on the economy allowing litigations that are aimed to transform the economy to be market-based to ensure it naturally survives economic conditions in the future. The move acted as a motivation since foreign investors welcomed it warmly with increased volumes of investments witnessed after the government indicated the move (Ming, 2012). Controlling the cash supply has been muddled by China's approach to keeping up its swapping scale peg at its present level of 8.3 Renminbi every dollar notwithstanding quickly expanding outside venture inflows, particularly throughout the most recent two years. Direct financial specialists have extended their operations to China, and portfolio speculators have conjectured on a coin evaluation, creating supposed "hot cash" inflows. To keep up the peg, the national bank has mediated by offering household capital in return for remote stores; accordingly, the amount of outside stores has expanded, it grew over $100 billion in the most recent year putting weight on fiscal totals and swelling (Ming, 2012). As such, the national bank has figured out how to balance a lot of this weight through disinfection strategies that drench up the overabundance liquidity connected with the cash inflows. Conversely, it is not clear that sanitization will be dominant in the more extended term. For one thing, China's household security markets are moderately shallow. For an alternate, so long as the predominating investment rate on the securities is so small, it might be hard to pull in purchasers (Knight and Ding, 2012). Right now, it is vague how effective China's endeavours at moderating the economy have been and whether the legislature will depend on two more extensive centred approach choices raising investment rates or revaluing the cash. Both the national bank Governor and the Vice Governor have talked about the first alternative, specifically, increasing the base lending rate from 5.3%, the level that has won since 1995. In independent explanations, these authorities said that the People's Bank would think of it as if swelling surpassed 5%, or if CPI development brought on an antagonistic genuine giving rate. The CPI expansion figures of 5.3% for July and August 2013 broke this edge (International Economic Association, Aoki and Wu, 2012). It is prudent to note that both the Chinese government together with the Central Bank of China have implemented various policies that are aimed at enhancing the economy of the country. Conversely, some of the policies only served the interest of the government thus turning out to be discriminatory in the open market. Despite that the economy has been successfully maintained for a considerable amount of time, and this can be manifested by the massive economic strides that China has taken recently. However, it is a wait and see situation since pundits warn that the real repercussions of the policies that are implemented now will thoroughly blow out after the economic ‘catching up period ’ is over when the country will have to rely on forces demand and supply to control its economy (Knight and Ding, 2012). References International Economic Association, Aoki, M., & Wu, J. (2012). The Chinese economy: A new transition. (International Economic Association conference volumes, 150.) Houndmills, Basingstoke, Hampshire: Palgrave Macmillan. Knight, J. B., & Ding, S. (2012). China's remarkable economic growth. Oxford: Oxford University Press. Ming, L. (2012). China's economic development: Institutions, growth and imbalances. Cheltenham: Edward Elgar. Read More