Macroeconomics and its study with relevance to china

Summary

In accordance to the formulation of latest economic data juxtaposed with macroeconomic principals and theories it can be stated that at the start of 2006, the People's Republic of China officially proclaimed itself as the fourth largest economy, determined by USD-exchange rate leaving behind France and the United Kingdom. The People's Republic of China has an economy, which is graded as the fourth largest economy in the world, when measured by nominal GDP. According to the records of 2005, about 70% of China's GDP is in the private sector.

Introduction

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According to The Star Business, it is estimated by the financial specialists of Pricewaterhouse Coopers that, "China could overtake the United States by 2025 to be the world’s largest economy and is anticipated to grow to about 130% the size of the United States by 2050".[1] (The Star, 2008) it can well be stated that the basis of this statement is completely dependent on the microeconomic theories related to finance and particularly the quantity theory of money.

In general, it can be stated that Macroeconomics is a subdivision of economics that has its transactions with the behavior, structure and performance in terms of regional or national economy. Aggregated indicators price indices, unemployment rates and GDP are the prime factors of this subject along with several other variables such as international finance, international trade, investment, savings, inflation, unemployment, consumption, output and national income.

The current article analyzes the trends of Chinese finance market and applies the quantity theory of money and the momentum or velocity of its circulation in Chinese market and beyond. The equation of exchange i.e. M. V=P.Y is applied in this case to yield the forecast. In accordance to the formulation it can be stated that China's National Bureau of Statistics in December 2005 recalculated its 2004 nominal GDP raised by 16.8% or Rmb2, 336.3 billion (US$281.9 billion), making China the 6th largest economy in the world, leave behind Italy, with a GDP of almost $2 trillion USD. At the start of 2006, the People's Republic of China officially proclaimed itself as the fourth largest economy, determined by USD-exchange rate leaving behind France and the United Kingdom. (Edelman, 2005)

Discussion

At the beginning of 2006 China arises as the second largest economy in the world determined by domestic PPP (purchasing power) measure, at about $10 trillion USD, although such approximation must be taken with a great deal of warn as PPP estimation is very vague, more than ever in a huge country like China, Chinese acquiring capacity varies radically between Shanghai and Sichuan, and PPP is immaterial for imported products and overseas acquisitions. By the end of 2008, China foresee (determined by exchange rate) to go beyond Germany as the third largest economy, and to overtake Japan by the year 2015. (IMF, 2007) Thus, it is certain that China is fast becoming a global super power, at least economically as the quantity theory of money suggests and as calculated by the financial specialists of Pricewaterhouse based on this theory.

The People's Republic of China has an economy, which is graded as the fourth largest economy in the world, when measured by nominal GDP. Its cost-effective productivity for 2006 was $2.68 trillion USD.  Its per capita GDP is rising rapidly. According to the records of 2005, about 70% of China's GDP is in the private sector. The less significant public sector is occupied by about two hundred large state enterprises concerted mainly in utilities, energy resources, and heavy industries.

Since 1978 the People's Republic of China (PRC) government has been restructuring its economy from a Soviet-style centrally planned economy, where the state or government have the sole power over the issue of production and takes all decisions about their utilization and about the dissemination of income, to a new market-oriented economy, in which the manufacture and dissemination of goods and services is done through the system of free markets directed by a gratis price system.

Within the political skeleton, given by the Communist Party of China this economic system has been termed as Socialism with Chinese characteristics and is a category of mixed economy. Since 1978 after the implementation of these reforms, millions of people have been elevated out of poverty, bringing down the poverty rate from 53% of populace in 1981 to 8% by 2001. (Kar, 2006)Thus it is clearly seen that the velocity of money is fast gaining momentum and when the equation of M. V=P.Y is applied it is clear that growth is tangible and constant.

The record of China’s progress over the past two decades has demonstrated naysayer wrong and optimists not positive enough. Upon close assessment, China’s record loses some of its sheen. China’s economic presentation since 1979, for example, is in fact less imposing than that of its East Asian competitors. Regardless of China's distinguished economic progress, its per capita and total GDP growth has been over taken by some nations.

From 1999 to 2006, Russia's minimal per capita GDP increased from $1334 to $6879 (515 percent), while that in People's Republic China increased from $870 to $2000 (229 percent). Similarly impressive are some oil producing nations of Middle Eastern, such as Qatar, United Arab Emirates, Bahrain, Kuwait, and Brunei. Kazakhstan, Azerbaijan, Turkmenistan, and Angola had outpaced China in utilizing huge energy coffers in the same time.

On the other hand, Equatorial Guinea, an African country recorded 79% percent real GDP augmentation in 2004. Even some countries in Asia such as Vietnam have made GDP triple between 1999 and 2006 in ostensible per capita dollar basis, astonishingly more than China. The strength of overall economy is a major determinant of political significance in the present time and China is doing quite well in this prospect. (King, 2006)

In adjunct, it must be kept in mind that per capita income in absolute dollars (not percentage) GDP per capita is ascending much rapidly in most of the developed nations of the world than China, on account of China's very low foundation of  income. The Central Committee of the Chinese Communist Party a short time ago permitted the draft for the 11th 5-year plan for 2006 - 2010. The plan is intended to achieve a comparatively conventional 45% increase in GDP and 20% decline in energy intensity by 2010.

Intriguingly enough, due to its vast population, China's per capita share of world GDP can by no means accomplish the levels of the USA or Japan or some European countries in the 1990's by economic progress alone. Avowed in another way, an average Chinese can never posses the same comparative economic power that possessed by average Americans, Western Europeans, and some Japanese in 1990's. This is demonstrated as Japan had 20% of world GDP in April 1995, with not more than 2% of its population. (Lamb, 2004)

Conclusion

As China contains approximately 20% of the world's population, it would require 200% of world GDP to compete with Japan's level by this evaluation in April 1995, which is next to impossible. China’s share of total population of the world would have to reduce in size to well below 10% for this to happen. (Fletcher, 2005) Thus, it is quite clear that microeconomic theories like the quantity theory of money is very relevant in the modern context of financial analysis and forecast and the formulation of the national and economic variables are always dependable. Thus, it is obvious that economic commentaries or economic reports, like the one by The Star, can always be used for the fundamental understanding of macroeconomics and its principals.

References:

Edelman, S; (2005); Evaluation Techniques in International Business Management; Bloemfontein: ABP Ltd

Fletcher, R; (2005); Principals: Beliefs and Knowledge; Believing and Knowing; Dunedin: Howard & Price

IMF; 2007; Reports: 2006-2007; Paris: ADM Press

Kar, P; (2006); History of Industrial Economics and Related Applications; Kolkata: Dasgupta & Chatterjee

King, H; (2006); Economic Principals Today; Auckland: HBT & Brooks Ltd

Lamb, D; (2004); Cult to Culture: The Development of Civilization on the Strategic Strata; Wellington: National Book Trust

[1] The Star; (March 2008); China to be world’s largest economy in 2025; KUALA LUMPUR: thestaronline

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