China is a very well-known country for the number of exports that come out of this country. This paper will discuss the long-run determinants of both the level and the growth rate of real GDP per person and the factors that determine the productivity of workers and what the Chinese Government might do to improve the productivity of their citizens. This paper will also discuss China's financial system and how it is related to critical macroeconomic variables as well as how an organization can reduce risk by relocating. In closing, the current and projected unemployment over the next five years will be discussed. China is a prime example of a very active country in trade and economic growth.
China Factors Determining Productivity
Productivity factors determined in China include physical capital, human capital, natural resources and technological knowledge. China once maintained a human capital, however with recent policy changes they have now transitioned to more physical capital. The workforce shortage benefits capital goods providers, as companies have started to replace physical labour with machines. China's natural resources include mining. China is the leader in mining gold, zinc, lead, molybdenum, iron ore, coal, tin, tungsten, rare earths, graphite, vanadium, antimony and phosphate, and holds second place in mine production of copper, silver, cobalt, bauxite/alumina and manganese (“China is burning through its natural resources," 2015, para.).
Order custom essay The Financial System of China and Its Relation to Critical Macroeconomic Variables with free plagiarism report
China's growing economy remains thirsty for sustainable supplies of raw materials. Ever since Schumpeter (1934) brought up technological innovation as one of the basic factors for economic development, the dynamism of innovation has never ceased to intrigue researchers (Fagerberg et al., 2005). China economic growth is related to the human capital, technological knowledge, and innovation. The two popular notions of knowledge spillover and technology transfer have both been centered around the production and diffusion of knowledge and technology. The patterns and processes of industrial production and technological innovation in the ICT manufacturing sector in China. China could benefit from the economics as the U.S. U.S. has achieved the efficiency in allocating inputs across production units.
Government Influence on Productivity Growth
Productivity growth influences the standard of living for citizens in a specific country. There is a vast amount of ways to determine the growth of a nation. Understanding the way, a country grows allows one to understand the landscape of their economics and the way citizens of the country live. If a country continues to grow, income for its citizens grows as well and leads to better housing, nutrition, and healthcare. However, one of the factors that impact the way a country grows is government oversight and influence. Logically, every country will have some oversight on economics. However, when there is a large amount of bureaucracy, this can stifle the way the country is not only able to grow but compete in the world market (Manikiw, 2015).
A good illustration of the role government plays in productivity growth is evaluating the last couple of years of China's growth rate. At the time of printing in our textbook, China's growth rate per year was at 2.15. However, since 2010 their growth rate has dwindled down to 1.4%. How did this happen? One way to account for the downslope in growth rate is by evaluating some of the policies that have had an influence on China's economy.
In 2015, China decided to loosen its credit to allow for investments in infrastructure and housing. This had an impact on the short-term economy but has not had a lasting impact on the year over year growth. This is because there is more risk involved in not only loosening the credit, but the high amount of debt leads to marginal returns. This is illustrated by evaluating the return to China's gross domestic product when credit is produced. At one point, 1.5% credit growth equaled a 1% return to the overall GDP.
At this moment, it takes almost double the amount to get the same return. This means more credit must be provided to get the same return they were receiving a couple of years ago. These types of trends are largely due to China's reluctance to loosen the reigns on the amount of oversight and involvement they have in their economy (CNBC, 2017).
The Country's Financial System
China's financial system is directly correlated to key macroeconomic variables such as Gross Domestic Product or (GDP), unemployment rate and inflation rate. "The interdependence of legal, regulatory, fiscal, state enterprise and financial sector reforms has limited the speed with which reforms can be pursued in any one area" (Tseng, & Rodlauer, 2003). The financial system can either stunt growth or speed it up depending on the regulations in place, the value of the currency, and the ability to change and grow with the rest of the world.
China is well known to be ahead in technology and has been for some time. The innovation of the technological advances has assisted China in remaining one of the front-runners in many subjects. The GDP, unemployment rate, and inflation rate illustrate this well. Savings is integral in China, and the investment and savings rates in China have grown throughout the past twenty years. The GDP has steadily increased the worldwide economy as China is a top trader in the World Trade Market.
When a business starts making plans for expanding a company and relocating to another country or state for that matter, the business has to know that the company will thrive in the new location and that there will be people at the company that know how to do the work and be able to train and teach the new people how the system runs and operates.
One of the biggest reasons a company moves is to make and bring in more clients reach a bigger demographic and get the products and merchandise at a much lower cost. "Reasons for the movement of people range from technological advancement, to revamping cities, to aiding developers in utilizing prime real estate for the advantage of the state." Different countries have different prices when it comes to the cost of materials and shipping to different parts of the world. When a company relocates the price of the merchandise they sell or the business they off can change in a positive or in a negative.
The customers that have been with the business since it first opens may have certain types of privileges over another customer that has not been with the same company as long. “In the present cost-conscious global economy human resources (HR) task is to support employees' efforts to achieve the company's strategic goals in its foreign operations while providing fair and competitive pay for those same employees all without costing the company more than s necessary considering the numbers."
According to Trading Economics: "Unemployment Rate in China decreased to 3.89 percent in the first quarter of 2018 from 3.90 percent in the fourth quarter of 2017. Unemployment Rate in China averaged 4.11 percent from 2002 until 2018, reaching an all- time high of 4.30 percent in the fourth quarter of 2003 and a record low of 3.89 percent in the first quarter of 2018. (Unknown, n.d.)" With a projected unemployment rate in the year 2020 increasing to be at five percent by the fourth fiscal quarter.
The organization's strategic plan calls for an aggressive growth plan, requiring investment in facilities and equipment, growth in productivity, and labor over the next five years. The best place, outside the United States, our organization should locate its new manufacturing plant is China. There are several reasons for this. China has been a great trade partner of the United States for many years. Furthermore, the unemployment rates have been decreasing and GDP increasing. The least risk factors occur in moving into China as it is already a well established economy and will further enrich our business as well as possibly open up new opportunities.
Cite this Page
The Financial System of China and Its Relation to Critical Macroeconomic Variables. (2023, Mar 23). Retrieved from https://phdessay.com/the-financial-system-of-china-and-its-relation-to-critical-macroeconomic-variables/
Run a free check or have your essay done for you