China's Real Growth

Real Growth of China



Table of Contents

Introduction3

Projections about Chinese Economy9

Factors raising concerns over Chinese Economic Growth11

Signs of Bubble11

Real State Bubble12

Commodity Prices16

Inflation or Deflation16

Quality of Growth19

Investment Rush and China's Deflation21

Is China's Growth Real22

Conclusion22

Real Growth of China

Introduction

China has been witnessing a rapid economic growth and even during the financial crisis and difficult circumstances, it has been able to achieve double figure economic growth. The shift towards rapid economic growth is attributed to the reforms introduced in 1978. The annual GDP growth rate remained at 9.4% from 1978 to 2002. Rapid expansion has taken place in the overall infrastructure of the country. China has a current nominal GDP of $5.93 trillion, and it is the second largest economy of the world after America. It is also the largest trading power of USA with a total trade of US$ 2.21 trillion. Moreover, it has the highest foreign reserves of the world. In the year 2010, the foreign reserves of China increased to US $2.85 trillion increasing at a rate of 18.7% from last year. However, now various groups are raising their concerns over the real growth of China and the growth of China has been questioned. At the end of 1997, deflation in the country was evident, and in spite of many efforts made by the state to reduce deflation in the country, problem has not been solved yet. Deflation is usually followed by slow economic growth, but China's growth rate reached 7.8% annually during the deflation period from 1998 to 2002, which was the fastest all over the world. Moreover, results depicted that energy consumption of the country declined from 1998 to 1999. It is important to study, whether this growth is real, or it is just a myth. In this paper, we will discuss the pros and corns of Chinese Economy and would discuss the concerns raised by various economists that economic growth in China is not real.

Discussion

Economic Performance and GDP

China's economic performance has been a remarkable one in the recent past. The average growth rate of China remained at 9.4% during 1978-2002. The Chinese economy has witnessed several growth and inflation cycles since the introduction of reforms.

The economic before the 1990s was due to heavy investment made by government and the private sector. It also resulted in significant credit expansion and money supply followed by inflation. In order to control inflation government had to control investment and credit expansion in the economy. The central bank of the country and Chinese government adopted retrenchment program in 1994 to control credit expansion and inflation in the economy.

Due to the introduction of retrenchment program in 1994, Chinese economy started showing signs of deflation. In 1998, Zhu Rongji switched to a new policy by adopting a package for expansionary fiscal policies to boost economic growth. The results were not favorable for the country as deflation in the economy continued, and the retail price index dropped by 2.6% in 1998, 3% in 1999, 1.5% in 2000, ...