Regression industry transfer and the economic development in chinaIn the past few years, the economic development of China is remarkable. It has grown to become one of the world’s largest economies. It is assumed that by 2035, it will likely overcome that of the United States of America. This remarkable economic growth of China is due to the communist government, which followed several economic reforms and measures aiming for economic development. In order to counter economic pressures that are imposed by the global economic crisis, China has announced an economic stimulus package.
A major portion of this amount was utilized for the economic development of this nation. Thus, still, there is time to keep a watch that if this package is going to help China to boost its economy. A major part of the package would be utilized for infrastructure projects. The existing infrastructure is likely to receive a boost following the infusion of economic stimulus money. Almost 7.5 billion yuan is set aside for low-rent housing projects in China along with that about 2 billion yuan that had already been put on low-rent housing projects in China.
The economic development of China will take place on the basis of investment in infrastructure projects which include railroad, water conservancy, and highways. Further corruption was the major challenge for China’s national government. It has been one major problem that obstructed China economic development. Due to the lack of accountability of persons and money distributed to local governments for public utility services was becoming a concern for China. China’s global economic influence is today incomparable. It has been analyzed that the said the economy is now in a slowdown phase and it is in the process of moving towards a different model of growth and development.Here are key macroeconomic indicators for china: China has an average growth rate of over 9% pa since 1978, this is a year when market-based reforms in the Chinese economy started. Sustained and rapid growth in China has lifted over 700 million people out of extreme poverty and thus had poverty alleviation. It has Millennium Development Goals among which it has reached to many. Development in China is now slowing down and a lower target rate of growth of 7% has been set which it has to maintain. Capital investment and exports have been the foundations for Chinese development. In order to have sustained growth China needs to achieve a re-balancing of the economy. It can do so by relying less on exports of low to medium value manufactured products and gradually moving up value chains to produce and sell products with a high-knowledge and high-technology component. In this way, more growth has been derived from household spending (consumption) on goods and services Sustainability has become an important part of China’s development strategy due to which addressing the pressures that come from rising inequalities of income and wealth. When the success is achieved in improving sustainability through low carbon innovation and other technological developments then that can provide China with new sources of external demand as many companies export products and license technology. Still, it is a Communist state run by the Chinese Communist Party but it is also becoming an open economy where trade is for nearly seventy percent of GDP. In the year 2000, China’s economy was 7.1% of the world’s total GDP (in PPP terms) whereas by 2015 China had a 19% share of global GDP – higher than any of the other BRIC nations. Further Per capita incomes are rising though still, it is low by advanced-nation levels. It has been found that GDP (by valued-added) from Chinese companies has been close to 50% for more than 30 years but from1980 the share from service industries grown from 30% to 43%. This much below than that of developed countries where services account for more than 70% of GDP. Apart from that Agriculture’s share of Chinese GDP has fallen. There has been a huge movement of millions of people away from rural areas into urban centers of the population but agriculture is still around 40% of total employment. According to the latest Economic Plan on the basis of developing the services sector, increasing urbanization and improving incomes there are big opportunities.ProgressionsChina completes its transition to a market economy with help of enterprise, land, labor, and financial sector reforms which enables it to strengthen its private sector, open up markets for more competition and innovation, and make sure that there is equality of opportunity to help achieve its goal of a new structure for economic growth. A new development strategy for China has been laid which is to rebalance the role of government and market, private sector and society, to reach up to the goal of a high income by 2030. Some of the Chinese development strategies areas: There is a unique combination of market and command economy, but the market is gaining importance gradually. In the past many years China has followed export-led growth with exports exceeding 40% of GDP Korea, Japan, Germany, and Switzerland run trade surpluses with China as they are able to export the high-value manufactured items, especially investment goods, that it needs. The focus of China’s development policy is changing. Foreign Direct Investment and Chinese GrowthWhen it is about FDI outward because of trade surpluses, China has gained foreign-exchange reserves in excess of $3 trillion. These surpluses help in the process of outward overseas direct investment which is much of the current focus is on China’s investments in many African and Latin American countries. Besides that, China has around $1bn per day interest income from its FX reserves. It has been found that China has given more loans to poor countries than the World Bank. In most of the African countries such as Nigeria and Zambia, amounts from China of over US$100 million per year have been provided.There are numerous companies which have made investments in Western and Eastern Europe in engineering and technology. This is considered as part of an effort to find new markets and gain greater control of global supply chains. Large scale investments made in mining is helping the country to get into the world’s second-largest copper mining nation.FDI into ChinaChina attracts high levels of inward foreign direct investment. It further aims to attract more FDI in advanced manufacturing, as well as services like logistics, research and development, higher education and vocational training. This enables it to boost the service-side of the economy and to lift per capita incomesChinese ExportsIn the last twenty years, China’s export companies are ruled by manufacturing and selling consumer goods to rich advanced countries. But gradually it is shifting the focus of exports towards selling heavy industry products to developed and developing countries. It exports a lot of low-valued added production like cheap textiles and household goods are shifting to underdeveloped countries such as Vietnam and Bangladesh. Another change in Chinese exports is a shift away from selling to rich, advanced, developed country markets towards fast-growing developing nations including Africa.Sovereign Wealth FundsThe sovereign wealth fund is known as the China Investment Corp (CIC). This is charged for making portfolio investment overseas. China has helped many businesses to make big capital investments in other developing countries especially the African continent which is rich in natural resources. Domestic investment and rural developmentThe Chinese government has made some currency reserves to increase investment in rural areas of China so that rural revitalization can be done. This is for ensuring support to living standards and development in some of the poorest parts of the country. There are many Chinese farms whose subsidies have grown, as a share of total farm incomes, that’s the reason subsidies in China have increased.In the meantime, it is also ensured that infrastructure spending and innovation for improving water and energy efficiency in farming is for uplifting agricultural productivity and profits.Challenges China faced: A lot of attention is provided to economic, social and political developments in China. Due to which it had sustained growth and development. This growth is not inevitable though the key macro indicators suggest that China is on a firm path towards becoming the world’s biggest economy. There are challenges to overcome in tackling the situation. The key point is that China is gradually transferring from the less capital-intensive development model. Environmental challenges are one of the biggest challenges and then comes the growth of inequality of income & wealth. There is a threat from high inflation and various global trade tensions that people are facing. There are various demographic challenges that are lowering the reliance on China on exports and trade surpluses. What is wage inflation?Wages are rising fast and thus it going to hit a stage in its development at which demand for labor starts to grow faster than supply, creating labor shortages and pushing up salaries. The main reason for the increase in wages is that China is ceasing to be a labor surplus country. At some places, wages in China remain low compared to richer advanced countries and other emerging nations. A recent data will suggest that they are typically around $300 a month in the manufacturing heartlands, which is lower in rural areas.Demographics: China is getting older before as it is getting richer. Life expectancy has increased, while fertility has decreased due to strict birth control policies. In the “one-child policy” the fertility rate dropped to between 1.5 and 1.8, whereas 2.1 figure is needed to keep the population stable. This policy has now been changed but still, changes are yet to happen. In the case of old-age dependency ratio, it will double in the next two decades, and the size of China’s labor force is projected to start reducing. Similarly, there are various other social pressures which are creating an obstacle. The Wages are rising due to growing concerns among the Chinese authorities about the results for income inequality of rapid growth. Tens of millions of workers have moved to the Chinese cities where average wages are higher but that is creating a deeper imbalance in rural areas which is already suffering from low incomes and low-quality public services. Another challenge in the path of economic development of China, the Labor shortages and worker unrest have shown an increase in the minimum wage in many Chinese regions. Whereas the government firms must increase wages by at least 13% every year but in certain areas, the local authorities mandate much higher rises than what is required.International pressure on foreign multinationals those are operating in China to increase the wages for their workers. Most media reports have highlighted factories with miserably low wages and appalling working conditions. The organizations like the Fair Labor Organization have been active in arising concerns about low wages and possible exploitation by monopsony employers. Foxconn Technology Group is a Taiwan-based company and it is also China’s largest private-sector employer and was heavily criticized after fourteen worker suicides at one of its mainland Chinese plants over a 10-month period after local protests.These are consequences that China has to face due to rapid wage inflation:1. Costs and profits: A short-term effect on profits for manufacturers such as Foxconn and Nike but that will ultimately help in the development process.2. FDI: There will be a shift of FDI away from China to lower-cost countries like Vietnam and Bangladesh. Although numerous experts say that the relocation of manufacturing and FDI will be little due to factors that are unique to China ” for example, high manufacturing reliability, close access to Chinese domestic markets, which has the excellent supply chains built up over twenty years, the existence of external economies of scale in China and commitments helps in increasing productivity and product quality ” which is ultimately making the wage rate less important. Due to the relocation of manufacturing is more likely to happen within China which are up to lower-cost interior regions with excellent transport and communication links.3. Income and consumption: China is a country that is today well-positioned to join the ranks of the world’s high-income countries if growth can be sustained for long. Rising wages will help in boosting demand for consumer durables, leisure activities and housing. Thus it helps in providing a new source of demand as China looks to wean itself off resource-heavy investment and export-led growth.4. Trade balances: When there are higher wages and incomes that may lead to a rise in demand for imports into China. This gives an opportunity for advanced countries and they might stimulate FDI for consumer-facing businesses such as retailers and financial services companies.5. Productivity and innovation: High wage growth will fast-forward the drive-by Chinese producers to raise total factor productivity. This is done by investing in human capital and technology to lift output per worker. Annual labor productivity growth in China from is 8.3% which means that 10% annual growth in real wages will have little effect on unit labor costs.Thus, this is an important longer-term trend for the Chinese economy and when the size of the Chinese population is forecast to peak around 2025-2030 and then it will start to decline. There is a possibility that the labor force has a contract in the next forty years. China’s working-age population is declining although per capita income is only around 1/5th of incomes in rich nations, still, the fertility rate in China is on par with those of Russia, South Korea, Japan, Germany, and Italy.As China is growing old gradually so its dependency ratios are increasing. This has put it an upward pressure on government spending and an aging workforce will be less mobile and probably demand higher wages. When a portion of Chinese citizens are over 60, and nearly one in every 10 were over 65 and if the age continues to rise in the years ahead then that would create a big problem.Here Inequality is a major social and political issue as there are income inequality higher than most other Asian economies and their relative poverty level is quite similar to that persisting in many Latin American nations. The average wealth per Chinese citizen was nearly double that of other high growth economies such as India. This is leading to a gap and this difference between urban and rural incomes is widening. Most of the rural residents had an average per capita disposable income of $898, which was less than a third of the average of urban residents $2,900. Brazil is the only one among that of the BRIC countries who have managed to reduce inequality in recent years. That also in part due to its successful Bolsa Familia (family allowance) policy which offering conditional cash transfers for poorer families paid directly to the female head of the family. Thus, many economists including some influential ones in China believe that their system favors large corporations and a small rich elite, at the expense of the majority.