Economic Problem in China
Economic development of any nation is important because it enhances the economic, political, and social welfare of the citizens. A country whose economic development is sound has a wider tax base and this enables it to collect adequate revenue. The amount is used to finance development projects such as construction of roads and support of social amenities such as education. An economy that is developed also helps in enhancing the economic welfare of the population through creation of jobs. The many companies and businesses that are in the region create employment opportunities for the people and this enhances economic development. One of the factors that affects the economic development of a nation negatively is the over-reliance of an economy on a single sector as it makes it vulnerable to external forces. With economic development, it is unlikely for the nation to rely on one sector, thus reducing its vulnerability. It is evident that economic development of any nation determines the extent to which it is able to respond to the needs of the society and in turn, promote the welfare of the people. This implies that the failure of a nation to promote the development of its economy affects its ability to respond to the needs of the citizens. The pace at which economic development grows determines the nation’s economic, social, and political progress. The slow pace at which economic development of some Asian Pacific nations is in the modern days threatens their ability to respond to the needs of the citizens. This paper discusses the major economic problem in China, which is slow economic development. It also discusses the main factors that have led to the slow economic growth as well as strategies that the country should implement to enhance economic growth.
The slow pace at which the Chinese economy develops in the modern days is an indication that the country may not be able to meet the needs of the population in the near future (Nannan and Jianing 9). The slow economic growth is not consistent with the population growth in the region, thus it is not possible for the economy to cater for the needs of the population. The main issues that cause the slow pace of economic development are related to the structure of the nation. There are structural problems in the nation that are likely to lead to economic instability in the nation, despite the high level of production. One of the factors that indicate economic development of a nation is the ability of the citizens to consume many domestic products because this stimulates the local economy. For the nations whose economic development is on the decline, there is a lot of exports because of low demand in the local economy. The industries in such economies are not motivated to increase their production, leading to slow economic development. For China, the main factors that have led to the current economic situation are identifiable, implying that the state of the economy can be restored to a better one. The speed of economic development in the country can be improved through revising policies that govern the various structures affecting the economic development. The following are the factors that have contributed to the slow economic development in the country in the recent years.
Over-reliance on public investments
The country’s economy depends heavily on the government’s projects in the country. The slow pace at which the country’s economy is developing is partly attributed to the amount of funds it has allocated to public investments. In the late 1970s, the country underwent a major economic reform that was aimed at stimulating the economic development of the nation (Zhang 136). The policy encouraged the government to allocate adequate funds on investments such as transport, energy, water, and telecommunication. The policy supported both the social and environmental aspects in the society, thus promoting the economic growth and development of the nation. The public investments in the country are part of the economic development planning conducted every five years. The first planning was carried out in the early 1950s, to cater for the period between 1953 and 1957 (Yao 70). The plan aimed at stimulating the economic growth and development, which was very slow at the time. Among the factors that the policy supported included heavy investment in the manufacturing industry and the adoption of new technology in activities such as mining.
To achieve the set objective, the nation adopted the Soviet model of economic development. Although the model was well implemented, it failed to achieve the set targets on economic development because the level of technology was very poor to support the economic model. Further, the ratio of the population to the available resources was too high, leading to poor implementation of the plan. The model mainly focused on communal planning and it was expected that the centralized decision making process would enhance the productivity of the economy. It aimed at striking a balance between the inputs and outputs of the economy (Wang 50). Although the model was not successful in enhancing the productivity of the economy, it enhanced stability of prices in the country. The economic model encouraged state-owned properties that boosted the economic activities in the country. However, there was progress in the manufacturing industry as the country increased its investment on heavy industry. Its productivity in the manufacture of metal and cement increased, leading to economic growth and development. The model did not support agricultural activities but this did not hinder the economy from developing because the heavy industry was performing well.
Most of the economic decisions in the country are centered on the economic plans that are formulated every five years. In the recent years, the economic decisions made in the country seem to be less responsive to the needs of the citizens (Hong 1050). To boost economic activities in the country, the main focus of the nation is on increasing public investments. The public investments have the capacity to enhance the economic growth and development of a nation. The investments promote the economic welfare of the citizens through creation of employment opportunities. Increased employment rates imply a high level of economic development due to a rise taken together demand of the citizens. The effect of high aggregate demand is improvement in domestic economy as the level of production and consumption rises. However, an economy that relies heavily on public investment seems to assume the other methods that can improve the economy such as boosting the private sector. Such economies ignore the fiscal and monetary policies that may enhance the economic development by boosting the private sector. Relying too much on public investments may lead to provision of poor quality services due to lack of competition in the sectors.
The economic development of the country in the recent years has also slowed down due to high debt by the nation. The rate of debt in the country is high as it tries its best to fund public investments. Debts slow the economic development of a nation because a significant amount of revenue collected from the other sectors of the economy is used in financing the public investments. Due to the pressure of financing public investment, the country is heavily indebted. The amount of Gross Domestic Product (GDP) in the country is not adequate to finance the national debt and meet the other economic needs of the citizens.
Falling demand for domestic products
The reduction in the demand for local products in the country has also decreased the rate at which the economy develops. Although the government has invested heavily on public investments, there are still issues with the demand for goods. The capacity of production in the public sector is higher than the demand of the citizens. This implies that the high investment has led to over-capacity in the sector, leading to low demand by the local consumers. The falling demand for the locally produced goods affects the economic growth and development of a nation. The consumers in the country are not able to utilize all the goods and services offered by the companies.
In China, the local population is unable to fully consume the products produced by the public investments, especially the heavy industry. The low demand for products in the country discourages the local companies from producing goods. This reduces the amount of revenue that the government collects in form of tax from the produced goods as well as exports. The reduction in revenue affects the rate at which the economy develops because it is unable to respond to the needs of the society. With the fall in demand for locally produced goods, the rate of economic growth is slow because the economic activities are low. The pace at which the economy develops is determined by the ability of the government to fund economic activities in the country.
The reduced demand for the domestic companies has an adverse impact on the growth of companies in the region. Due to the reduced demand, the companies are unable to meet their growth and expansion targets. The only companies that are able to survive in the market are the large multinational companies that have the capacity to produce goods for international market. The inability of the small companies to sell their products to a wider market affects their ability to grow. This slows down the economy because it affects the ability of the economy to address the issues facing the citizens (Pettis 42). The result of these reduced earnings by the small companies affects their ability to expand to new markets. Eventually, the companies are unable to meet their operational expenses due to the reduced demand and they may become bankrupt. The poor performance by the small companies leads to reduced activities by the company. In response to this, the companies may reduce the number of employees by laying off some of them so as make the operational costs manageable. This further slows the demand for the domestic products due to the low disposable income by the companies. Consequently, the economic growth at the national level reduces as the revenue collected by the government reduces by the day.
Over-reliance on exports
Exports are beneficial to an economy because it earns a lot of foreign income. When the amount of revenue collected through exports is equal to the amount of imports, there is little likelihood of the economy to change for the worse. The ability of an economy to generate adequate exports promotes the domestic economy, but when the amount is too high it leads to a trade deficit that adversely affects the economic growth and development. In China, the high level of public investments promotes the production of local goods, especially in the manufacture of consumer goods. Due to the over-capacity in production, the amount of goods that the consumers are able to consume is lower than the goods that are available in the market. The low demand for the goods in the local market increases the amount of goods available for export.
The other factor that has led to increased dependence of the country on exports is due to high imports of unfinished products. A significant amount of the revenue collected by the economy through exports is used to import goods from other nations, which are then assembled and exported to other nations. In assembling the goods to complete products, the price of the exports is higher because the new products have higher value. The ability of the nation to assemble the products to finished goods reduces the need to produce all the goods locally, which would make the exports more worth. Since the early 2005, the country has been experiencing a drop in imports which leads to trade imbalance (Popescu 88). Due to the support provided by the government in terms of public investments, the companies are able to produce a lot of manufactured goods.
Strategies that should be adopted to fasten the economic development
Slow economic development affects the political, social and economic development of a nation negatively. It makes it difficult for the economy to produce at the optimum level and this worsens the economy even further. The main aim of every government is to enhance the well-being of the citizens, and this cannot be achieved with a slow economic development. Economies need to find means of enhancing their economic development to avoid a situation where the growth slows and may eventually start decreasing.
One of the ways that the pace at which the Chinese economy is developing can be increased is by implementing mechanisms that enhance the productivity of private sector. Although the public sector contributes significantly to the economic growth and development of a nation, it is important to promote the private sector too as a way of boosting economic growth and development. When the private sector is improved, this creates competition in the provision of goods and services to the public. As the two sectors strive to offer the best goods and services to the public in the most efficient way, there emerge new methods of production and better goods and services. To improve the private sector, the government needs to implement mechanisms that allow individuals and companies to access cheap financing to start their businesses. This boosts their activities and allows them to carry out their operations profitably. The other mechanism that can be used to promote the private sector is through incentives such as tax holidays that allows the sector to increase their earnings.
The government also needs to strive to strike a balance of trade by reducing the number of imports in the country (Lardy 14). Instead of increasing the amount of revenue used in importing unfinished products, the economy should focus on importing the technology used to manufacture the products so that it is able to make the products. This will eventually reduce the imports, leading to a positive balance of trade. The economy needs to reduce the dependence it has on imports by stimulating other sectors apart from the heavy industry. An example of an area that the economy should focus on is agriculture to improve the productivity of food in the country.
In conclusion, the slow economic growth and development in the country is an indication that the government needs to come up with measures to contain the situation. With a slow rate of economic development, the economy will not be able to compete favorably with the other economies in the region. The country needs to formulate mechanisms that boost its economic development and promote the well-being of the people. The primary factor that affects the economic growth and development of the nation is the level of aggregate demand. Therefore, the economy should boost its aggregate demand by stimulating the local economy. By supporting the private sector, it is possible for the country to increase the rate of employment that enhances economic productivity of the nation.
Work Cited
Hong, Yu. “Reading the Twelfth Five-Year Plan: China’s communication-driven mode of economic restructuring.” International Journal of Communication 5 (2011): 1045- 1057.
Lardy, Nicholas R., and Arvind Subramanian. Sustaining China’s economic growth after the global financial crisis. Peterson Institute, 2011.
Nannan, Yu, and Mi Jianing. “Public infrastructure investment, economic growth and policy choice: evidence from China.” School of Management, Harbin Institute of Technology. Harbin, (2012).9
Pettis, Michael. “The Contentious Debate Over China’s Economic Transition.” Policy Outlook, Carnegie Endowment for International Peace, March 25 (2011).
Popescu, Gheorghe H. “Social Evolution of China’s Economic Growth, The.”Contemp. Readings L. & Soc. Just. 5 (2013): 88.
Wang, Huiyao. “China’s new talent strategy: Impact on China’s development and its global exchanges.” SAIS Review of International Affairs 31.2 (2011): 49-64.
Yao, Yang. “The Relationship between China’s Export-led Growth and Its Double Transition of Demographic Change and Industrialization∗.” Asian Economic Papers 10.2 (2011): 52-76.
Zhang, Liqing. “China’s Policy Responses to the Global Financial Crisis: Efficacy and Risks.” Global Financial Governance: Challenges and Regional Responses (2009).