PROJECT REPORT ON:

RISE OF

CHINA
AS

AN ECONOMIC POWER

Submitted to by:

Submitted

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Mrs. Navjot Kaur Kaur

Arpandeep
MBA- 1C Roll no: 5218

TABLE OF CONTENTS
Introduction about china Economic history of china Republic of china ( 1911- 1949) Peoples Republic of China (1949 onwards) From planned economy to free market powerhouse: The post - Mao era ( 1976 onwards ) Worlds second largest economy Brief overview of chinas present economy China as worlds second largest economy Comparison with U.S. & Japans economy Graphical presentation of chinas economic growth Reasons of chinas rapid economic growth Forecasts about chinas economy IMF Report Other forecasts Conlusion

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INTRODUCTION ABOUT CHINA

China is one of the biggest countries in the world. It has an area of about 9.6 million square kilometers which comprises about 6.5 per cent of the world total land area. Its population of more than one billion accounts for 23 per cent of the world's population. China is the world's oldest continuous civilization. World Travel Organization predicts that by year 2020, China will become the number one travel destination in the world. China is situated in the eastern part of Asia on the west coast of the Pacific Ocean. It is the third largest country in the world (after Canada and Russia). China has a land border of 22,143.34 kilometers long and is bordered by twelve countries: Korea in the east; Russian in the northeast and the northwest; Mongolia in the 3 | Page

north; India, Pakistan, Bhutan and Nepal in part of the west and southwest; Burma, Laos and Vietnam in the south. Beside a vast land area, there are also extensive neighboring seas and numerous islands. The coastline extends more than 14,500 kilometers.

ECONOMIC HISTORY OF MODERN CHINA

The economic history of modern China began with the fall of the Qing Dynasty in 1911.

REPUBLIC OF CHINA ( 1Z911-1949)

The period of 4 | Page

Republic of China was a turmoil for China after the

collapse of the Qing dynasty. From 1911 to 1927, China virtually disintegrated into regional warlords, fighting for authority and causing economic misery and contraction. After 1927, Chiang Kaishek managed to reunify China and bring in the Nanjing decade, a period of relative prosperity despite civil war and Japanese aggression. In 1937, the Japanese invaded and literally laid China to waste in eight years of war. The era also saw the first boycott of Japanese products. Afterwards, the Chinese civil war further devastated China and led to the fall of the Republic in 1949.

Civil war, famine and turmoil in the early republic

The early republic was marked by frequent wars and factional struggles. From 1911 to 1927, famine, war and change of government was the norm in Chinese politics, with provinces periodically declaring "independence". The collapse of central authority caused the economic contraction that was in place since Qing to speed up, and was only reversed when Chiang reunified China in 1927 and proclaimed himself its leader.

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 Development of domestic industries

Chinese domestic industries developed rapidly after the downfall of the Manchu Qing dynasty, despite turmoil in Chinese politics. Development of these industries peaked during World War I, which saw a great increase in demand for Chinese goods, which benefitted China's industries. In addition, imports to China fell drastically after total war broke out in Europe. For example, China's textile industry had 482,192 needle machines in 1913, while by 1918 (the end of the war) that number had gone up to 647,570. The number increased even faster to 1,248,282 by 1921. In addition, bread factories went up from 57 to 131. The May 4th movement, in which Chinese students called China's population to boycott foreign goods, also helped spur development. Foreign imports fell drastically from 19191921 and from 1925 to 1927. Chinese industries continue to develop in the 1930s with the advent of the Nanking decade in the 1930s, when Chiang Kaishek unified most of the country and brought political stability. China's industries developed and grew from 1927 to 1931. Though badly hit by the Great Depression from 1931 to 1935 and Japan's occupation of Manchuria in 1931, industrial output 6 | Page

recovered by 1936. By 1936, industrial output had recovered and surpassed its previous peak in 1931 prior to the Great Depression's effects on China. This is best shown by the trends in Chinese GDP. In 1932, China's GDP peaked at 28.8 billion, before falling to 21.3 billion by 1934 and recovering to 23.7 billion by 1935.

The rural economy of the Republic of China

The rural economy retained much of the characteristics of the Late Qing. While markets had been forming since the Song and Ming dynasties, Chinese agriculture by the Republic of China was almost completely geared towards producing cash crops for foreign consumption, and was thus subject to the say of the international markets. Key exports included glue, tea, silk, sugar cane, tobacco, cotton, corn and peanuts. The rural economy was hit hard by the Great Depression of the 1930s, in which an overproduction of agricultural goods lead to massive falling prices for China as well as an increase in foreign imports (as agricultural goods produced in western countries were "dumped" in China). In 1931, imports of rice in China amounted to 21 million bushels compared with 12 million in 1928. Other goods saw even more staggering increases. In 1932, 15 million bushels of grain were imported compared with 900,000 in 1928. This increased competition lead to a massive decline in Chinese agricultural prices (which were cheaper) and thus the income of 7 | Page

rural farmers. In 1932, agricultural prices were 41 percent of 1921 levels.Rural incomes had fallen to 57 percent of 1931 levels by 1934 in some areas

Foreign direct investment in the Republic of China

Foreign direct investment in China soared during the Republic of China. Some 1.5 billion of investment was present in China by the beginning of the 20th century, with Russia, The United Kingdom and Germany being the largest investors. However, with the outbreak of WWI, investment from Germany and Russia stopped while England and Japan took a leading role. By 1930, foreign investment in China totalled 3.5 billion, with Japan leading (1.4 billion) and England at 1 billion. By 1948, however, the capital stock had halted with investment dropping to only 3 billion, with the US and Britain leading.

Currency of the Republic of China

The currency of China was initially silver-backed, but the nationalist government seized control of private banks in the notorious banking coup of 1935 and replaced the currency with the Fabi, a fiat currency issued by the ROC. Particular effort was made by the ROC government to instill this currency as the 8 | Page

monopoly currency of China, stamping out earlier Silver and goldbacked notes that had made up China's currency. Unfortunately, the ROC government used this privilege to issue currency en masse; a total of 1.4 billion Chinese yuan was issued in 1936, but by the end of the second Sino-Japanese war some 1.031 trillion in notes was issued. This trend worsened with the outbreak of the Chinese Civil war in 1946. By 1947, some 33.2 trillion of currency was issued as a result of massive budget deficits resulting from war (taxation revenue was just 0.25 billion, compared with 2500 billion in war expenses). By 1949, the total currency in circulation was 120 billion times more than in 1936.

The Chinese war economy (1937-1945)

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In 1937, Japan invaded China and the resulting warfare literally laid waste to China. Most of the prosperous east China coast was occupied by the Japanese, who carried out various atrocities such as the Rape of Nanjing in 1937 and random massacres of whole villages. In one anti-guerilla sweep in 1942, the Japanese killed up to 200,000 civilians in a month. The war was estimated to have killed between 20 and 25 million Chinese, and destroyed literally all that Chiang had built up in the preceding decade]. Development of industries was severely hampered after the war by devastating conflict as well as the inflow of cheap American goods. By 1946, Chinese industries operated at 20% capacity and had 25% of the output of pre-war China. One effect of the war was a massive increase in government control of industries. In 1936, government-owned industries were only 15% of GDP. However, the ROC government took control of many industries in order to fight the war. In 1938, the ROC established a commission for industries and mines to control and supervise firms, as well as instilling price controls. By 1942, 70% of the capital of Chinese industry were owned by the government.

Hyperinflation, civil war and the relocation of the republic to Taiwan

Following the war with Japan, Chiang acquired Taiwan from Japan and renewed his struggle with the communists. However, the 10 | P a g e

corruption of the KMT, as well as hyperinflation as a result of trying to fight the civil war, resulted in mass unrest throughout the Republic and sympathy for the communists. In addition, the communists' promise to redistribute land gained them support among the massive rural population. In 1949, the communists captured Beijing and later Nanjing as well. The People's Republic of China was proclaimed on 1 October 1949. The Republic of China relocated to Taiwan where Japan had laid an educational groundwork. Taiwan continued to prosper under the Republic of China government and came to be known as one of the Four Asian Tigers due to its "economic miracle", and later became one of the largest sources of investment in mainland China after the PRC economy began its rapid growth following Deng's reforms.

PEOPLES REPUBLIC OF CHINA ( 1949 ONWARDS )

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The People's Republic of China is marked by two distinctly different periods: the Mao Era, characterized by a soviet-style planned economy that extinguished the market and eventually became unresponsive, and the post-Mao Era, more properly called the Deng Era (after the reformer who started it) characterized by a transition to a relatively free market economy which was one of the most prosperous periods in China's history. Many Chinese are hopeful that this newfound prosperity will last and China will reclaim her place at the top of nations.

The Mao Era (1949-1976)

The Mao Era was marked by a soviet-style planned economy which was instituted, despite his promises, in 1949-52. A decade of relatively peaceful development and collectivization followed, but in 1959 Mao launched the disastrous Great Leap forward, an attempt to collectivize all aspects of life (even the peasants' 12 | P a g e

cooking pots), a disaster that was exacerbated by famine. Following this, a reformist faction led by Deng Xiaoping and Liu Shaoqi forced Mao out of office and experimented with market reforms such as giving peasants private plots. However, these reform efforts were disrupted by Mao's Cultural Revolution, a period of virtually total anarchy and street fighting that resulted in the collapse of the Chinese economy and ended with the arrest of theGang of Four.

Early policies of tolerance

Mao initially promised to work with "patriotic capitalists, the petitbourgeois and other classes" in a period of "New Democracy" in which some capitalism would be allowed. However, in 1952 he broke his promise and accused capitalists of sabotaging China's war effort in Korea. Following this, businesses were collectivized.

Collectivization of industry and agriculture

Collectivization of industry took place from 1951 to 1954, by which time industry was entirely in state hands. Despite the communist party's original plans not to finish collectivization of agriculture until 1971, Mao pushed ahead with mutual aid teams by 1953, and People's commune (by 1955, forcing the collectivization of agriculture. 13 | P a g e

 Economic development in the 1950s

With Soviet aid, Mao set up a basic industrial base that included a small set of industries, mostly related to military matters, that was to become the basis of the later modernization by Deng Xiaoping. New buildings, roads, railroads, and a basic infrastructure was put in place to sustain Chinese development. Illiteracy and a whole host of parasites were eradicated. For these reasons, the 1950s is usually regarded aS THE HIGH POINT OF THE MAO ERA.

Great Leap Forward

In 1959, Mao launched a crash industrialization program under the official title the Great Leap forward. This involved making many peasants urban workers, collectivizing virtually everything (including cooking tools) and setting up backyard furnaces to improve steel production. However, the program was a disastrous failure[19]. The new collectivization destroyed the incentive of the peasants, and distorted priorities. Most of the new steel produced from backyard furnaces was useless. The food system collapsed and millionsestimated to have been as high as 45 million people died, usually from starvation or vulnerability to disease caused by severe malnutrition 14 | P a g e

 Attempts at reform
Reformists, such as Liu Shaoqi and Deng Xiaoping, began to push for reform, after the disastrous Great Leap Forward. They undid some of Mao's priorities, such as disbanding the People's communes and giving peasants private plots. Mao was infuriated and, in 1966, struck against the reformers, calling them Capitalist roaders and launching the Cultural Revolution.

Cultural Revolution and collapse of the

economy
The Cultural Revolution party program is almost universally assessed to bring about one of the most catastrophic periods ever in China.[citation needed] Youth groups aligned with Mao, known as Red Guards, deposed, brutalised and frequently executed city and provincial government officials, and then took control themselves. This began in Shanghai and quickly spread across the country. By 1966, most of the country was in the hands of revolutionary committees which battled each other for power. This disruption, as well as the purge of millions of intellectuals, workers, and officials as counter-revolutionaries, had a severe impact on the economy. Economic output fell some 30% over three years, and stagnated for the rest of the period. In addition, 15 | P a g e

an entire generation was deprived of education while China's development was hampered for years to come. Referring to this period, Deng Xiaoping said it had created "an entire GENERATION OF MENTAL CRIPPLES".

Deng Xiaoping's rise

An old party stalwart, Deng had been of the reformist faction in the early 1960s and purged in the Cultural Revolution. After Mao's death, however, a coup overthrew the Gang of Four and instilled old party officials such as Deng back in power. However, it was not until 1978 that Hua Guofeng, Mao's appointed successor, resigned and Deng took power, though he was never officially the leader, instead holding the position of chairman of the Central military commission.

FROM PLANNED ECONOMY TO FREE MARKET POWERHOUSE: THE POST-MAO ERA (1976 ONWARDS)
While, in 1976, at the end of the Cultural Revolution, China's planned economy was in ruins and its people barely surviving, the country was to witness, in the next two years, one of the most rapid periods of change in her 5,000-year history. Deng Xiaoping 16 | P a g e

initiated free-market reforms that transformed China's economy. Only 30 years later, China moved from being an economically desolate country into an industrial powerhouse, rapidly overtaking developed western nations in recession. The agent of this dramatic change, Deng Xiaoping, is sometimes known as "Deng Gong" (The Venerated Deng) for his achievements.

De-collectivization of agriculture
One of Deng's first actions was to break up the People's communes that Mao instated and grant a system of "Bao Chang Dao Hu" in which each plot of land was given to each household to farm. This system was successful enough to allow Deng in 1983 to lift limits on consumption of many agricultural goods that were instated during the Mao Era due to scarcity. However, these limits were not completely lifted until 1994.

Liberalization and privatization of business

Private businesses, which were banned in the Mao Era for being "Capitalist exploiters, were reinstated in the Deng Era. Early on, a citizen could opt to become "Ge Ti Hu or self-employed household, and to set up a business instead of taking on state jobs. These "Ge Ti Hu" quickly became extremely wealthy. In the 17 | P a g e

1990s, many state enterprises were privatized and private individuals were allowed to create companies. In 1990, the Shanghai Stock Exchange was reopened

after Mao first closed it 41 years earlier. Another innovation instated during this period was the Chengbao system or contracting system, in which state assets were given to private operators, who gave the state the money needed for expenses as well as a share of the profits. This system was also rapidly adopted; in the 1980s and 1990s, many schools, hospitals and even bus lines passed from the state to private operators. However, this system was also criticized as many felt that the change in operation for these schools and hospitals, now forprofit, was detrimental to the poor. In addition, some private contractors were accused of gaining their positions solely because of nepotism. 18 | P a g e

Although privatizations had occurred in the 1980s, it was sped up in the 1990s by Premier Zhu Rongji, who started a policy of privatizing all state enterprises which were losing money. In 1997, the CPC issued a verdict declaring that state-owned companies were now "people-owned companies" who would be subject to mergers and bankruptcy. Thousands of state companies were privatized or partly floated on the stock exchange. In 1978, more than 90% of GDP was produced in state enterprises, which, up to 1992, dominated China's economy. That figure, not accounting for state assets that were contracted, had fallen to 30% by 2009.

Foreign investment and industrialization

In addition to internal liberalization, Deng also established a series of "special economic zones" in which foreigners could invest in China taking advantage of lower labor costs. This investment helped the Chinese economy boom. In addition, the Chinese government established a series of joint ventures with foreign capital to establish companies in industries hitherto unknown in China. By 2001, China became a member of the World Trade Organization, which has boosted its overall trade in exports/importsestimated at $851 billion in 2003by an additional $170 billion a year. 19 | P a g e

Despite a brief period in 1989 in which foreign capital withdrew from China, China continued to be one of the biggest recipients of foreign investment. In 2006, an estimated $699.5 billion of foreign investment was present in China. A great deal of this investment came from Chinese-speaking regions such as Hong Kong and Taiwan, who were the first to invest in China. Japanese and Western investment followed. Deng's liberalization of the Chinese economy, along with foreign investment, helped to power China's industrialization. From virtually an industrial backwater in 1978, China is now the world's biggest producer of concrete, steel, ships, textiles as well as the world's biggest auto market. For example, from 2000 to 2006, China's steel production rose from 140 million tons to 416 million tons. From 1975 to 1992, China's auto production rose from 139,800 to 1.1 million automobiles before jumping to 9.35 million in 2008.

Developments post-Deng
In 1997, Deng Xiaoping died. However, his reformist policies were continued by his successor, Jiang Zemin. The result was a vibrant, growing economy. Under Hu and Wen, who became leaders of China in 2003, the Chinese government continued to give up grounds to private enterprise, yet increased its control in other areas. The new 20 | P a g e

premier, Wen Jiabao, reinstated some Mao-Era social systems, such as social security, as well as sponsoring a new initiative in health care in which the state retook control of hospitals from many contractors who had run them for two decades. However, this was reversed in 2009. Nevertheless, China's economy continued to grow. In 2008, however, it was affected by the global financial meltdown and the growth rate fell to 9.0%. As of 2008, China's GDP (PPP) was between 50 and 60 percent of the GDP (PPP) of the US, while over 10 percent of world GDP (PPP). To offset the effects of the global economic crisis, the government announced a financial stimulus of around 4 trillion yuan spread over two years. However, new spending by the government was actually only about 1 trillion yuan; the rest was already part of the government's budget.[29] In mid-2005, China began to experience an enormous property bubble, largely caused by loose monetary policy under premier Wen Jiabao. Property prices tripled from 2005 to 2009, and are continuing to rise. Some analysts also discovered a new management style in China. The Chinese managers refrain from the American management model, where short-dated success are more important than longdated strategies, and take more care of the environment, the people and the culture of an area, where they do business.

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 World's second largest economy

In July 2010, Yi Gang, Deputy Governor of the Bank of China, claimed China's economy had overtaken Japan as the world's second biggest economy by nominal GDP. This fact was confirmed in February 2011, when the official economic statistics was issued by Japan (Chinese statistics for 2010 was published earlier), which showed that Japan's 2010 GDP was worth $5.474 trillion, when China's 2010 GDP was around $5.8 trillion.

BRIEF OVERVIEW OF PRESENT ECONOMY OF CHINA

ECONOMY OF THE PEOPLES REPUBLIC OF CHINA Rank Currency 2nd Renminbi (RMB); Unit: Yuan (CNY)

Fiscal year Trade organizations STATICS

Calendar year 01 January to 31 December

WTO, APEC, G-20 and others

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GDP growth

10.46% (major economies: 1st; 2010)

GDP per capita $4,283 (nominal: 95th; 2010) $7,518 (PPP: 93rd; 2010) industry (46.8%), services (43.6%), agriculture (9.6%) GDP by sector (2010 est.) 4.9% (January 2011)[2] 780 million (1st; 2010) agriculture (39.5%), industry (27.2%), services (33.2%) Labour force by occupation 4.2% (July 2010) (2008)

Inflation (CPI) Labour force

Unemployment Main industries

mining and ore processing, iron, steel, aluminum, and other metals, coal; machine building; armaments; textiles and apparel; petroleum; cement; chemicals; fertilizers; consumer products, including footwear, toys, and electronics; food processing; transportation equipment, including automobiles, rail cars and locomotives, ships, and aircraft; telecommunications equipment, commercial space launch vehicles, satellites

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Business Rank EXTERNAL

79th (2011)

US$1.506 trillion (2010) Exports US$1.506 trillion (2010) electrical and other machinery, including data processing Export goods equipment, apparel, textiles, iron and steel, optical and medical equipment US 20.03%, Hong Kong 12.03%, Japan 8.32%, Germany 4.27% (2009) US$1.307 trillion (2010) electrical and other machinery, oil and mineral fuels, Import goods optical and medical equipment, metal ores, plastics, organic chemicals Japan 12.27%, Hong Kong 10.06%, South Korea 9.04%, US 7.66%, Taiwan 6.84%, Germany 5.54% (2009) $100 billion (2010)

Main export partners South Korea 4.55%,

Imports

Main import partners FDI stock

Gross external $406.6 billion (22nd; 2010) debt 24 | P a g e

PUBLIC FINANCES Public debt Revenues Expenses 17.5% of GDP (112th; 2010) $1.149 trillion (2010) $1.27 trillion (2010)

The People's Republic of China is the world's second largest economy after the United States. It is the world's fastest-growing major economy, with average growth rates of 10% for the past 30 years. China is also the largest exporter and second largest importer of goods in the world. China became the world's top manufacturer in 2011, surpassing the United States. The country's per capita GDP (PPP) is $7,518 (IMF, 93rd in the world) in 2010. The provinces in the coastal regions of China[7] tend to be more industrialized, while regions in the hinterland are less developed. As China's economic importance has grown, so has attention to the structure and health of that economy.

CHINA AS WORLDS SECOND LARGEST ECONOMY

China has become the world's second largest economy, with Japan surrendering its 42-year-old ranking after its economy shrank in the final months of 2010. 25 | P a g e

China has claimed since as early as 2008 that it either was, or was imminently poised to become, the worlds second-largest economy. Until now, Japanese economists have patriotically refuted the Chinese figures. However, weak consumer spending and a strong yen saw Japans gross domestic product (GDP) fall by an annualised rate of 1.1pc in the final quarter. That allowed China to pull ahead with a GDP total of $5.88 trillion (3.68 trillion) for 2010, on a non-adjusted nominal dollar basis, compared to $5.47 trillion for Japan. Table showing top economies of the world:

COUNTRI ES

RAN K

APPROX. GDPPPP( IN TRILLION)

CONTRIBUTI ON OF INDUSTRIAL SECTOR IN GDP

CONTRIBUTI ON OF AGRICULTUR E SECTOR IN GDP 1.2%

U.S.A.

$14.6

22.2%

CHINA

$10.08

46.8%

9.6%

JAPAN 26 | P a g e

$4.30

23%

1.1%

INDIA

$4.001

28.6%

16.1%

GERMANY 5

$2.93

27.9%

0.8%

RUSSIA

$2.21

33.8%

4.2%

BRAZIL

$2.18(2,181,680,0 26.4% 00,000)

6.1%

U.K.

$2.18(2,181,010,0 22.1% 00,000)

0.9%

FRANCE

$2.14

19.2%

1.8%

ITALY

10

$1.77

24.9%

1.8%

By comparison, the United States recorded GDP of $14 trillion in 2009, but experts have predicted that after sweeping past Germany, France, the UK and now Japan, China will catch up with the US by as early as 2030. Similar predictions were made for Japans prospects during the 1980s. However, after more than a decade, being overtaken by China reflects Japans declining political and economic power. 27 | P a g e

GRAPHICAL REPRESENTATION OF CHINAS ECONOMIC GROWTH

Chinas GDP growth rate over the years:
(1980-2010)

Year

Gross domestic product, constant prices

198 0 198 1 198 2 198 3 198 4 28 | P a g e

7.91

5.2

9.1

10.9

15.2

198 5 198 6 198 7 198 8 198 9 199 0 199 1 199 2 199 3 199 29 | P a g e

13.5

8.8

11.6

11.3

4.1

3.795

9.21

14.195

14.003

13.099

4 199 5 199 6 199 7 199 8 199 9 200 0 200 1 200 2 9.101 8.292 8.399 7.599 7.801 9.3 10 10.9

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200 3 200 4 200 5 200 6 200 7 200 8 200 9 201 0

10.101

10.091

11.29

12.692

14.191

9.595

9.096

10.456

COMPARISON WITH U.S. & JAPANS ECONOMY

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CHINA Population Life expectancy Literacy GDP GDP growth rate GDP per capita Labour force Unemployment rate Inflation rate Current account balance Exports Imports 1.33bn 74 91.6pc $5.88 trillion 10.3pc $4,410 819.5m 4.2pc 5.1pc $180bn $1.58 trillion $1.4 trillion

JAPAN Population 127m

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Life expectancy Literacy GDP GDP growth rate GDP per capita Labour force Unemployment rate Inflation rate Current account balance Exports Imports

82 99pc $5.47 trillion 3.9pc $43,070 65.6m 4.9pc -0.9pc* [2010 estimate] $204bn $766.6bn $562.6bn

UNITED STATES

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Population Life expectancy Literacy GDP: $5.88 trillion GDP growth rate GDP per capita Labour force Unemployment rate Inflation rate Current account balance Exports Imports

310m 78 99pc $14.7 trillion 2.9pc $47,400 153.9m 9.4pc 1.1pc -$561bn (negative) $1.27 trillion $1.9 trillion

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REASONS OF CHINAS ECONOMIC GROWTH

Starting in 1978, Deng Xiaoping's reforms opened the Chinese economy and were the major causes of China's economic growth.In 1978, Deng Xiaoping introduced began a series of reforms known as gaige kaifang, or reform and opening up. These were intended to jumpstart Chinas economy and caused rapid economic growth in China. Major causes of Chinas economy growth included the end of the commune system in farming, expansion of private business ownership and increased foreign investment in China.

End of the Commune System in China

The late 70s and early 80s saw the break up of the Mao-era communal farming system; this was one of the major causes of Chinas economic growth in the reform era. During the Mao era, farms were organized into communes of workers that were obligated to give excess production to the state. When Deng Xiaopings reforms hit, communes were reverted into traditional family style farms. This was a major step forward for Chinas economic growth because it created incentive for farmers to produce more. This excess created higher incomes and allowed rural residents to engage in small-scale rural enterprise. 35 | P a g e

 Private Business Ownership in China

One of the primary causes of Chinas economic growth was the loosening of restrictions on private businesses. Private enterprises began to sprout up, especially in the 1990s. These private enterprises quickly outperformed Chinas state-owned enterprises (SOEs). SOEs were not immediately dismantled, but they performed poorly compared to new private enterprises. Private companies were driven by a profit motive, rather than a political one, and were highly efficient compared to the aging SOEs.

Foreign Investment During the Deng Xiaopingera

The end of the commune system in the 1980s and expansion of private business ownership in China were important causes of Chinas economic growth since 1978. However these were greatly aided by a huge influx of foreign investment during the Deng Xiaoping-era. Deng Xiaoping opened the door to foreign investment starting in the late 70s. Foreign investment created badly needed infrastructure in the form of facilities like factories and other production centers. This also meant jobs and rising incomes for huge numbers of Chinese people. Furthermore, foreign investment created opportunities for transfers of technology as well as increased exports. From 1981 to 1994, for example, exports rose 19 percent per year. 36 | P a g e

From 1978, China embarked on a plan of economically liberal reforms. Deng Xiaoping's reforms included the end of the commune system, expansion of private business ownership and increased foreign investment. These all proved to be important causes of Chinas economic growth. This created the huge growth rates and rise in GDP in China that continue today.

Other Reasons

What is the most important reason why there is an improvement in the economic growth in the chinese out of the following policies. is it Government policy, education, investment from overseas, cheap labour or natural resources. 1. Cheap Labour China has a large unskilled workforce willing to work for low wages. In the north many farmers struggle to make an income, therefore, they are willing to move south and work in manufacturing for low wages. Therefore, despite high growth, wages have remained low. This has meant Chinese exports have continued to be very competitive. Exports to the rest of the world are one of the main factors behind increased AD and Chinas. Cheap labour has also helped avoid wage inflation, which could destablise economic growth.

2. Government Policy
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The Chinese government have been keen to promote economic growth (they have been concerned about unemployment from privatised industries and agriculture). Therefore, they have kept the Yuan undervalued. This makes Chinese exports more competitive and has helped the exporting sector. The government have also kept interest rates relatively low. Although, it is sometimes difficult for small business to get loans. Low interest rates have also encouraged some irresponsible lending. Arguably the government have contributed to a boom and there is a danger that the government have allowed growth to be too high. This could lead to inflation and a downturn in the future.

3. Raw Materials.
China has good reserves of raw materials such as coal. However, for many raw materials they are net importers. This is true, particularly, for metals, oil and precious commodities. In fact demand from China is one of the main reasons behind the boom in commodity prices. Therefore, we could say China has experienced growth, despite having to import so many raw materials. The increasing price of oil and metals may be a constraint on future growth.

4. Investment from Overseas.

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This increases productive capacity and helps improve technological development. However, as a % of GDP investment from overseas is relatively low.

5. Education
At the moment, Chinas comparative advantage lies in unskilled labour intensive industries. However, there is a growing, educated, middle class, which has enable the economy to diversify out of manufacturing. Education will be of increasing importance as China tries to provide greater value added to its industries. Other factors influencing growth may include: Domestic Demand Privatisation. Selling state owned assets to the private sector has enabled big efficiency savings. Consumer Demand in US

FORECAST ABOUT CHINAS ECONOMY AN IMF REPORT

IMF bombshell: Age of America nears end Commentary: Chinas economy will surpass the U.S. in 2016

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For the first time, the international organization has set a date for the moment when the Age of America will end and the U.S. economy will be overtaken by that of China. IMF sees China topping U.S. in 2016. According to the latest IMF official forecasts, China's economy will surpass that of America in real terms in 2016 just five years from now. According to the latest IMF official forecasts, Chinas economy will surpass that of America in real terms in 2016 just five years from now. It raises enormous questions about what the international security system is going to look like in just a handful of years. According to the IMF forecast, ago, whoever is elected U.S. president next year Obama? Mitt Romney? Donald Trump? will be the last to preside over the worlds largest economy. Chinas economy will be the worlds largest within five years or so.Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the size of the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take Americas share of the world output down to 17.7%, the lowest in modern times. Chinas would reach 18%, and rising. Just 10 years ago, the U.S. economy was three times the size of Chinas.

Other forecasts:
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By 2020 there will be a major shift in the global balance of economic power compared to 2010. Euromonitor International assesses the shift and its implications. Emerging economies will rise in importance and China will have overtaken the USA to lead the list of the world's top ten largest economies by GDP measured in PPP terms. Although in terms of major appliances the average unit price in China is forecast to grow to US$250, however this is still 250% less than the forecast for the USA. Volume and value gains will be sought through both emerging markets and developed markets over the long term, although it is clear over the medium term value is still going to be driven in developed North American and Western European markets. Consumer markets, including appliances and electronics, in emerging economies will present enormous opportunities but their rapid growth also poses a challenge to the global environment.

Key points:
The top ten largest economies in 2010 in terms of total GDP measured at purchasing power parity (PPP) are the USA, China, Japan, India, Germany, Russia, the United Kingdom (UK), France, Brazil and Italy. PPP is a method of measuring the 41 | P a g e

relative purchasing power of different countries' currencies over the same types of goods and services, thus allowing a more accurate comparison of living standards; Six out of the ten biggest economies in 2010 are advanced countries. With GDP measured at PPP terms accounting for 20.2% of the world total, the USA is the world's largest economy in 2010; In 2010, China ranks as the second largest economy in the world, with GDP making up 13.3% of the world total in PPP terms. Other emerging economies in the top ten biggest economies in 2010 are India, Russia and Brazil. Emerging countries have fared better than advanced economies overall during the global economic recession; By 2020, there will be major shifts in the world economic order in which emerging economies will become more important. China will overtake the USA to become the largest world economy in 2017 and there will be more emerging economies in the top ten economies by 2020 and beyond; The rise in importance of emerging economies will have implications for global consumption, investment and the environment. Large consumer markets in emerging economies will present enormous opportunities for businesses. However, income per capita will remain higher in the advanced world.

Advanced economies are slowing down:

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Since the 1990s, advanced economies have experienced much slower growth compared to the developing world due to the rapid rise of emerging economies including China and India. The declining trend of advanced economies has been accelerated by the global financial crisis in 2008-2009: The USA is the world's largest economy. However, its share in world GDP in PPP terms has declined from 23.7% in 2000 to 20.2% in 2010 due to faster growth of emerging economies as well as the severe impact of the financial crisis in 2008-2009. Real GDP contracted by 2.4% in the USA in 2009. The economy has recovered since early 2010 owing to stimulus measures; Japan's economy recovered slightly in the mid-2000s after a prolonged period of stagnation due to inefficient investments and the burst of asset price bubbles. The country has been hit hard by the global economic downturn since 2008 as a result of its over dependence on trade and prolonged deflation. Population ageing has also accelerated Japan's economic slowdown. In 2009, annual real GDP shrank by 5.2%; In 2010, the European Union (EU) economies account for 20.6% of world GDP measured at PPP terms, down from 25.1% in 2000. Population ageing and rising unemployment have contributed to their slowdown; The IMF forecasts that annual real GDP growth of advanced economies will reach 2.3% in 2010 and 2.4% in 2011 after a 43 | P a g e

contraction of 3.2% in 2009. This is much slower than the 8.7% expected in emerging Asian economies for both 2010 and 2011, which are driving the global economic recovery. Many advanced economies will also face the challenge of reducing public debts and government budget deficits, which will weigh on economic growth potential into the medium term.

Emerging countries are catching up and will overtake:

Emerging economies are catching up with the advanced world. By 2020, there will be changes in the global balance of economic power: China's share in world total GDP in PPP terms has increased from 7.1% in 2000 to 13.3% in 2010. By 2020, it will reach 20.7%. China will overtake the USA to become the world's largest economy as early as 2017; India is the fourth largest economy in 2010. By 2012, it will have overtaken Japan to become the world's third largest economy, with GDP accounting for 5.8% of the world total in PPP terms. In the long term, India could grow even faster than China due to its younger and faster growing population; By 2020, Russia will rank higher than Germany in the top ten economies in terms of GDP measured at PPP terms and become the fifth largest economy. Brazil, on the other hand, will have 44 | P a g e

overtaken both the UK and France to become the seventh largest economy in 2020. Being amongst the world's major exporters of energy and natural resources, Russian and Brazilian growth potential is promising although Russia's lack of economic diversification may cause problems in the longer term; By 2020, Mexico will have overtaken Italy to be the world's 10th largest economy by GDP measured at PPP terms. A growing population and proximity to the USA aid the country's economic development; With five emerging countries in the list of top ten largest economies, global power will become more balanced by 2020.

CONCLUSION
. China has experienced a remarkable period of rapid growth spanning three decades, shifting from a centrally planned to a market based economy with reforms begun in 1978. During this time, it grew at an average rate of about 9.7% per year, with exceptionally strong growth between 2003-2007 averaging about 11% per year. Growth remained strong during the recent global

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financial crisis, reflecting massive stimulus and strong underlying growth drivers. China became the worlds second largest economy in 2010; increasingly, it is playing an important and influential role in the global economy. and most analysts predict China will become the largest economic power in the world this century.

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