Introduction
Attention getter
Consumerism is one of the factors that led to the rise of America. On the other hand, it also led to several economic problems. Time will tell whether consumerism will make China face the problems that the U.S. is facing currently.
Link/Explanation/Source
According to an 8th September 2012 article in money.cnn.com, China’s economy is facing various problems that threaten its future stability. Inflation is one of the major problems. The annual inflation rose to 2.0% in August 2012. According to Riley in CNNMoney, on September 9, 2012, the annual economic growth of China reduced to 7.6%. This puts the country in a precarious position if the government does not address this problem.
Reveal Topic
Despite the fact that China is the world’s fastest and second-largest economy, the growth in CPI indicates some external problems that could affect the country’s position as a super economy in the future.
Justification/Significance
It is a fact that China will be a global economic force in the next few years. Therefore, it is vital for the country to lay strong foundations for its future growth. The purpose of this paper is to provide an analysis of China’s CPI with respect to its status as the world’s emerging economic power.
Preview
Today, we are going to analyze the CPI of China and the difficulties that the country faces as it strives to become the world’s new economic powerhouse.
Body
Problem (internal preview)
China’s economic policies expose the economy to various risks. One of the main domestic issues facing China’s CPI is the structural inadequacy of labor, which led to a decrease in the volume and value of export commodities.
Part one
Chinese CPI faced a structural inadequacy of labor. The structural problems later translated into a decrease in exports of commodities. The Chinese CPI experienced an increase in the first one-half of the year but quickly slowed down the rate of GDP development. China’s economy was volatile, with unchecked exports and reduced imports. In addition, the government did not monitor corporate behavior.
Review part one, preview part two
According to McCarthy in Intellasia.net on October 6, 2011, China’s government policies usually hide the actual value of the local currency against the dollar.
Part Two
China’s policy with regard to CPI has been partisan. The government tries to hide the actual domestic value of the yen. After joining the WTO, these policies did not change to fit the international standard, which caused a slow growth of the country’s CPI. This may pose several problems for the economy in the future.
Review problem, preview cause
The external environment forced China to make several changes to its economy to suit its development agenda. The Chinese FDI increased soon after it joined WTO, the RMB exchange rate became unstable.
Cause (Internal preview)
The government’s economic policies have reduced the rate of growth of domestic consumption due to the increase in exports. This unbalanced the economy of the country.
Part one
China’s government policies usually restrict freedom of the market. In addition, the policies interfere with the freedom of local exchange in RMB. According to Pingyao in China & World Economy Journal, the three major economic sectors exhibited significant growth in comparison to the previous years. The primary, secondary, and service sectors increased by double-digits. Despite this increase, domestic production did not increase. However, exports in the country have increased significantly. This has created an unbalanced economy. In addition, a significant increase in the FDI after China joined WTO unbalanced the economy.
Review part one, preview part 2
The Chinese government policies favor exporters, making the country the world “factory,” but domestic consumption is poorly developed.
Part Two
According to Chow in Journal of Economic Literature, China failed to develop domestic economic reforms that would cater to the deficit created by over-investment and slow domestic consumption after it joined the WTO. There was stability in the production of industrial products. China experienced a double-digit increase in value-added enterprises. This value was above the minimum scale. This provides an indication of the significance of the private and foreign sectors in economic development. An increase in domestic consumption has been unable to match the double-digit increase in value-added enterprises. This has made China become the world’s ‘factory.’
Review Problem and cause, preview solution
China’s CPI faced a structural inadequacy of labor that led to a decrease in exports of commodities. A solution to this problem is for the government to formulate policies that would reduce control of the financial institutions.
Solution (internal preview)
The government may fix the problem of the CPI by reviewing its policy on domestic consumption.
Governmental Step
According to Leung in the Shanghai Daily on March 18, 2013, the government may fix the problem posed by CPI by formulating policies that would reduce the government’s direct control of financial institutions. The government should ensure that there is interest rate liberalization. China should increase benchmark deposit rates and reduce the benchmark lending rate. This would help in stabilizing lending rates. According to Jiabao in Xinhua News Agency on March 18, 2013, the government should formulate policies that help in lowering the ending rate for both domestic and foreign banks operating in the country in order to reduce the deficit and inflation. Direct control of financial systems and other measures that strive to control domestic demand would help in reducing the CPI of the country.
Review government step, preview individual step
Lowering the rending rate would reduce CPI. However, the government should also facilitate businesses and individuals to access loans. The government should encourage individuals to operate bank accounts, take loans for investment, and work to increase their income levels.
Individual step
The government should encourage individuals to open bank accounts. Operating bank accounts would enable the government to reduce social financing. This would enable the government to control the financial system easily. According to Leung in the Shanghai Daily on 18th March 2013, increased social financing has reduced the government’s control of the financial system. However, it is extremely difficult for the government to mobilize all residents to open bank accounts and seek loans from financial institutions.
Conclusion
Wrap up
From this analysis, it is evident that China’s CPI performs quite well, but a number of internal problems are evident, compromising the future status of the country as the world’s economic powerhouse.
What we learned
Government policies are favoring domestic manufacturers and exporters while failing to cater to foreign direct investors.
Topic revisited
Despite the fact that China is the world’s fastest and second-largest economy, the growth in CPI indicates some external problems that could affect the country’s position as a super economy in the future.
Attention getter revisited
Inability to balance CPI may make China face problems in the future.
Closing impact
According to Walter and Howie in The Economist on December 9, 2010, China has a fragile financial foundation. Therefore, it should strive to create a strong financial system to ensure its long-term stability. A strong financial system would help in curbing some of the problems before they spiral out of control. This would make China become a role model in rapid economic development.
Works Cited
Chow, Gregory. “The impact of joining WTO on China’s economic, legal, and political institutions.”Journal of Economic Literature, 2001. Web.
Jiabao, Wen. “Full text: Report on the work of the government.” Xinhua News Agency, 2013. Print.
Leung, Chris. “China should raise interest rates as inflation kicks in.” Shanghai Daily, 2013. Print.
McCarthy, Erin. “China’s yuan hitches hide on surging dollar.” Intellasia.net, 2011. Web.
Pingyao, Lai. “Foreign direct investment in china: Recent trends and patterns.” China & World Economy, 2.1 (2002): 25-32. Print.
Riley, Charles. “China: Inflation jumps as economy slows.” CNNMoney, 2012. Print.
Walter, Carl and Fraser Howie. “Red capitalism: The fragile financial foundation of China’s extraordinary rise.” The Economist, 2010. Web.