Chinese Economy (Essay Sample)

Introduction
China perhaps boasts of being one of the most industrialized and economically vibrant countries. Looking at the present performance of the Chinese economy revels that good plans and measures have been put in place in helping to propel this country into one of the best performing economies in the world in terms of real GDP. Prior to the 19789 reforms in the free market mechanism, the Chinese economy was closed for foreign trade hence the poor performance economic wise (Morrison, 2). As of present, the Chinese economy is considered to be amongst the fastest growing economies on the globe because an average growth of above 7% had been maintained from the inception of the reforms in 1979 up to the year 2013 (World Bank,1) 1). However, the growth has slightly slowed down because of shift from manufacturing to service provisions (World Bank, 1). Despite all the good news associated with this country’s economy, it is not left out when it comes to the economic frictions (inflation) that affect most economies which then forms the basis of this papers discussion
Discussion
In the Chinese context, talking about inflation normally entails looking at the rate of inflation in China which essentially is the rate of inflation based on the consumer price index or CPI. The Chinese Consumer Price Index shows the change in prices of a standard package of goods and services which Chinese households purchase for consumption. This thus implies that for one to measure inflation, an assessment is made of how much the CPI has risen in percentage terms over a given period of time compared to the CPI in a preceding period. A persistent increase in prices describes inflation while a fall in the same describes deflation otherwise known as negative inflation.
In broad terms, the Chinese economy has been subjected to serious economic disturbances caused by inflationary tendencies. To start with, during the winter experienced in the years 2007 and 2008 inflation in China was running at about 7% or so on an annual basis (Morrison, 6). The inflation rate rose to a record high of above 8% as was reported in the statistics which were released in March 2008 (Zhu, 103). This was attributed to various factors amongst which were that the shortages of gasoline and diesel fuel in 2007as a result of the reluctance of refineries to conform to the states directive that the refineries produce fuel at low prices. The prices were later increased marginally in November 2007. The increase saw fuel prices standing at over $2.00 a gallon which in real terms was still slightly below world prices. The state had put in place price controls on a number of basic prices as a means of protecting its citizens from undue exploitation. The price controls were however not effective especially on food, whose prices were rising at an annual rate of 18.2% in November 2007 (Zhu, 123). This caused a major concern for the Chinese government that saw it on 9 January 2008, opt to take further measures aimed at stabilizing the market prices and at the same time increase severity of punishments for those guilty of driving up prices through hoarding or cheating. China’s economy was still faced by inflationary tendencies owing to the lifestyle and consumption habits of its people. On consumption, Pork forms an important part of the Chinese economy with a per capita consumption of about a fifth of a pound per day. The Chinese economy thus consequently suffered with the worldwide rise in the price of animal feed that emanated from increased production of ethanol from corn. This was reflected by unusually high pork prices in China in the year 2007. Statistics show that the increased costs of production did not interact so well with the increased demand especially as a result of rapidly rising wages.
Much of the Chinese economic growth is attributable to two main factors. These are rapid productivity and larger-scale investment of capital due to foreign investment and savings in the domestic market. Economic reforms have been hailed as having played an important role in accelerating the rate of economic growth for China. The Chinese economy enjoys an average saving rate of about 32% (Morrison, 5). The government reforms of decentralizing the economy resulted to an increased saving by the household sector. The government also undertook the initiate to relocate resources to productive sectors of the economy the result of which was increased efficiency for example the agricultural sector. However, it is feared that little is being done in the technological aspect as china starts to grow into a fully developed country. Many economists project a reduction in the growth in GDP with an average of about 6.3 % from the current year to 2020 and even a lower growth of as low as 4% from 2020 to the year 2030 (Morrison, 5).
Financial stability risks can best be solved through the fiscal policy and financial sector reforms. The government unveiling of an ambitious strategy in the year 2013 was in line with the recognition of the importance of the same reforms (World Bank, 17). These reforms are based on the reduction of government involvement in the economy. Not on...