A Critical Analysis of the Chinese Economy (Essay Sample)

A Critical Analysis of the Chinese Economy Student's Name Institutional Affiliation Course Number: Course Name Instructor's Name Due Date A Critical Analysis of the Chinese Economy China, although perceived as one of the world's economic powerhouses, has experienced pressures, both internally and externally, promoting ambitious measures to address weaknesses in its economic infrastructure. An economy leaning toward export overreliance is linked to economic imbalances. However, with the new demands, China has adopted measures such as domestic consumption and sustainable development to spur economic growth. Hence, pressures that have compelled China to shift from export-led growth are critical in the current economic reforms adopted or the country needs to embrace. The Limitations of China's Export-Driven Growth Model: Why a Shift Is Necessary China cannot continue depending on its export-led growth because it is no longer sustainable. One fact attempting to explain the sustainability created by surplus is the appreciation of the Renminbi (RMB). Exports have traditionally constituted one of the three components of aggregate demand in addition to retail sales and gross capital information. However, recently, China has been facing pressure to appreciate its currency as a response to the growing concerns regarding trade imbalances and the overdependence of export-led growth exerted on its economy. While a stronger RMB could reduce inflationary pressures, it also makes Chinese exports expensive in foreign markets, which is vital in making exports competitive. Yang (2012) asserted that one of the reasons for China's enormous trade surpluses is the initial unwavering pursuit of export-led development. According to Ma et al. (2013), in an attempt to rebalance the Chinese economy, the RMB exchange rate is already playing a facilitating role. The authors observed that the RMB has appreciated in real practical terms, enabling the shift of production from exports to home goods and services by making the exports less competitive and imports more attractive. The view that export-led growth is the primary factor behind account surpluses explains why China can no longer depend on exports for development. The pressure to rebalance its economy renders RMB a better option. There has been a shift toward domestic consumption as a source of growth, rendering export-led development irrelevant. With the desire to minimize reliance on external demand and enhance sustainable growth, China portrays a commitment to transition to a consumption-driven economy. Household consumption is considered the main engine for creation, but it seems underutilized (Holz, 2006). Holz (2006) observed that domestic consumption can also be realized at the government and private levels. Domestic consumption involves promoting the country's materials or resources that are exploited internally to drive economic growth. The increased demand for domestic labor has improved economic growth in China, which can be attributed to the shift to domestic consumption (Freeman, 2015). With the reforms in the economic structures, the over-dependence of export-led growth has become less competitive. Hence, China cannot continue relying on exports for economic growth. What should be the right new growth engine for China? The right new growth engine for China should take a hybridized approach to embracing reforms for economic development. At its core, there is a need to expand the service sector. The sector presents prime growth opportunities in finance, education, high-end business services, education, and healthcare. Holz (2006) exploits Maddison's adjustment to real growth rates, and the findings suggest the importance of the service sector in economic growth. For instance, transport and communication, commerce, and catering are associated with positive economic growth. Holz (2006) further observes that given the above-average growth rate of "other services," a larger weight is needed for their calculation of the gross domestic product growth (GDP), which implies an upward adjustment to GDP growth. Focusing on the service sector can become a source of economic growth in China if necessary policy reforms and an enabling environment are created. Sustainable development is another powerful growth engine China can consider to revolutionize its economy. As China faces environmental challenges, including climate change and pollution, embracing a sustainable and ecologically friendly growth model has become necessary. Investing in sustainable infrastructural projects, green technology, and clean energy is essential not only to reduce the overexploitation of natural resources but also to focus on a resilient economy critical for the current and future generations. As Downs (2004) indicates, the fact that China is a coal-based economy and experiences oil deficits is the main driver for the government to focus on self-sufficiency. However, the question arises as to what will happen to the Chinese economy in the future if it overexploits its energy resources today. The answer is straightforward: the future generation may experience economic growth challenges if the energy resources are depleted today. Crompton and Wu (2005) further indicated the problematic energy consumption in China, noting that the use and changes in the composition of energy utilization away from coal raises critical issues regarding the security of the country's energy supply in the future. With this said, the increasing reliance on conventional energy raises sustainability concerns. Green technology, clean energy, and sustainable infrastructure are the future of China's economic growth if they are to serve the current and future generations sustainably. How China Performed In 2012-Present Accordingly, China has demonstrated a multifaceted growth trajectory from 2012 to the present. The sharp declining trend in exports is one of the aspects denoting growth and structural changes. Since 2012, exports have declined from 0.28 to 0.20 in 2018 as a ratio to GDP. Figure 1, provided below, illustrates the trend. As a component of aggregate demand, the decline in exports could be explained by the growing pressure on China to rebalance its economy. The growing concerns about surplus are a core factor behind the need for economic restructuring. Thanks to the facilitating role that RMB is playing (Ma et al., 2013). Attached to the focus on rebalancing the economy, China's employment rate has been slightly increasing. As demonstrated in Figure 2 below, the overall urban state payroll employment. The increase in overall employment can be explained by the focus of the Chinese government on domestic consumption. The urban setting provides suitable platforms for the service sector, including entertainment and catering (Holz (2006). Nationwide, employment remained constant, with a slight decline in 2020 before it rose again (Figure 3). With a shift to domes...