The Importance Of Economic Growth In China

Submitted By seancraig19
Words: 1905
Pages: 8

Part 1
The massive infrastructure, vast amount of cheap labor, and advancements in technology have helped China’ industry grow at such an awesome speed. Since 1996, China has been the leader in production of steel, coal, cement, farm-use chemical fertilizer and television sets. Manufacturers, miners, utilities and builders accounted for over 45% of China’s GDP in 2012. In America, by contrast, they typically contribute less than 20%. Also in 2012, China had the 28th fastest industrial production growth rate in the world at 7.9%. The illustrations from above make it obvious that China’s key sectors are successfully growing. According to Deloitte, China’s industrial growth will flat line and force the country to expand into new sectors of growth and develop a more aggressive culture of innovation to keep its spot near the top. “To grow to even greater heights, China today must embrace new sectors and strategies for growth, as well as build a culture of innovation, in order to maintain its comparative advantage” (Deloitte). I believe that businesses entering into China will be successful due to the fact that it is such a big country with so many different opportunities available. Foreign countries also notice the growing opportunities in China.
Foreign direct investment stands out in China due to the fact that it is one of the largest countries in the world and houses almost two billion people. Cheap labor is a great cost saver when considering doing business with China. The cost margins are low resulting in a greater return on your business. Although China has billions of people, that doesn’t necessarily mean they are all consumers. Most people in China can only afford to put food on their families table let alone buy a cool new technology that your business is trying to sell. The purchasing power of the consumer can disrupt a new business’s sales. Another aspect is the poor channels of distribution. The roads and construction are so bad (in some parts) that new products can’t even be reached. Starting in the late 70’s, China has shifted its economy more towards an open market system. This has been a very beneficial transition with China’s economy being at an all-time high resulting in attracting foreign markets to join in cahoots with China. This made China the second biggest foreign direct recipient in the world after the U.S. In the last twenty years, FDI has increased China’s foreign funded enterprises by the hundreds. A huge amount of China’s economy is dedicated to their FDI which enables it to grow even larger each year. Constant improvement of China’s infrastructure and distribution channels will make their evolving, macroeconomic economy much more attractive in years to come.
Everyone wants to partner with China because of their vast amount of people and gigantic market appeal. For example, “ASEAN signed a free trade agreement with China that removes tariffs on 90 percent of traded goods” (Hill). This integration caused for tremendous growth and trade contracts between China and the countries within ASEAN. China is associated with the Asia-Pacific Economic Corporation which consists of the biggest economies in the world including Japan and the U.S. Being a part of the APEC means more resources are available from the wealthiest, most powerful of countries.
The Republic of China first witnessed currency in the form of silver, copper, and nickel. Silver appreciated in value and the Fabi then the Gold Yuan were created. None were sustainable currencies until the Yuan Renminbi was established and is still in use today. The Yuan is not floating but, “fixed every day by the Chinese government, and it’s not allowed to trade more than 1% away from that daily fixing” (Forbes). Comparatively, the exchange rate for Chinese currency equated to 8.1 Renminbi per one U.S. dollar. As shown in Figure 1 in the Appendix, China has one of the most restricted capital markets in Asia. The Chinese Communist Party (CCP) has repressed the