China Case Study Flashcards
Household Responsibility System (HRS) [Strategy]
Farming was collectivised; after HRS plots were privatised and food grown over the quota could be sold at unregulated prices
Effects of the HRS [Strategy]
Agriculture production rose 8.2% a year, food prices halved, and extra money was reinvested in privately owned town and village enterprises (TVEs) causing industrial growth
Industrial Reforms [Strategy]
Dual price system - where state-owned enterprises could sell production above the quote at market prices
Effects of Industrial Reforms [Strategy]
Went from a minor contributor to the biggest producer of concrete, steel, ships and textiles.
Open Door Policy and Special Economic Zones (SEZs) [Strategy]
1978 - four SEZs were established in the south of China that had tax incentives and weren’t regulated by the central government, enticing foreign and domestic firms. Came from a need for more western technology.
Effects of SEZs [Strategy]
Created millions of manufacturing jobs and boosted productivity, moved China from 32nd in exports in the world to 1st, surpassing the US in 2013. Trade in exports and imports grew from 10% of GDP in 1978 to 38% by 2018
Trade Reforms [Strategy]
China reduced trade barriers/ protectionism from 56% before the reforms to 3.8% in 2018.
They pledged to cut their protectionism more than other developing countries when they joined the WTO in 2001
Exchange Rate Policy [Strategy]
1995 - 2005 fixed exchange rate at just over 8 yuan/ $US until (fixed rate)
2005 - 2014 began allowing trade within a narrow band which by 2014 began increasing from +/- 0.3% to +/- 2% (managed peg)
2015 - Decpreciated out of the trading band and has since moved towards a floating exchange.
Recent years - Government no longer deliberately keeps the value of the yuan low, and has intervened in recent times to raise it
There are still strict rules about holding foreign currency so it is not considered fully convertible. Foreign money must be sold directly to China’s central bank which incorporates them into their foreign reserves (currently $US3 trillion)
Response to the GFC [Strategy]
GFC had a large effect on China due to its reliance on imports. They introduced an RMB4 trillion stimulus package in 2009-2010 - the current day equivalent of 14% of GDP. Expansionary fiscal policy offset the slowdown in the export sector
Economic Growth [Impact]
Until 2015 growth rate was on average 10%/ year for 30 years. Growth has slowed since 2012 and is currently 6% (September 2019)
Second largest economy (measured in PPP), has an important and influential role in the world economy. Has been the largest contributor to world growth since the GFC.
Why has economic growth slowed? [Impact]
- Working-age population peaked in 2012 and has been declining
- Capital investment as a percentage of GDP peaked at 48% in 2011 and has begun to fall (now 45%)
- Technological gap is narrower, therefore so is productivity (can only improve as much as there are space and resources to do so)
Economic Development [Impact]
Extreme poverty has decreased by around 400 million people in the last 25 years in China (- World Bank)
Reached all Millenium Development Goals by 2015
Rising real incomes and significant improvements in material indicators (e.g. GDP) and non-material indicators (e.g. HDI) for much of Chinese population
Life expectancy rose from 63 in 1975 to 76 in 2018
HDI rose from 0.518 in 1995 to 0.752 in 2018
Distribution of Income [Impact]
Real household income has risen 10% a year over the past 20 years which has come with an increase in income inequality (Gini 0.3 in the 80s to 0.47 in 2018)
Incomes are higher in urbanised areas in the east and south of China compared to rural areas in the west and centre.
Annual growth (13%) was 5 times greater than in north western areas. Places like Shanghai had income levels of 150% or higher than the national average while others, such as Tibet had 50%
Trade, Investments and TNCs [Impact]
2018 - 19% global GDP, 12% world exports of g&s (exports were 6% of GDP in 1980 to 20% in 2018)
Second largest goods trading to the US
Joined the WTO in 2001 at the Doha Conference, opened a market of 1.3billion people, caused increase in FDIs (at $US204 billion + $US86 billion in HK)
FDI is a key driver of the economy - capital fell during the GFC and haven’t risen much during the recovery period of 2011-2018. The government uses capital controls to encourage FDIs over portfolio investments
‘One Belt One Road’ initiative would link China with Asia, the Middle East, Europe and Africa and the infrastructure means an increase in economic output
Environmental Sustainability [Impact]
Rapid growth = environmental degradation
By 2020 it will cause 600, 000 premature deaths and 20 million respiratory illnesses per year
Up to 7% of GDP is lost on pollution which could rise to 13% if stronger environmental laws aren’t implemented
Carbon dioxide emissions were around 10 billion tonnes in 2013 - making it the largest polluter in the world
Up to 300 million people are drinking contaminated water every day
High incidence of respiratory diseases - China has the highest rate of chronic respiratory disease
