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Country Background Information
The People’s Republic of China or China, as is widely known, is a country situated in the Eastern parts of the Asian continent. China is a sovereign state ruled by a single party state the Communist party. In seeking to establish whether the country has a reasonable amount of stability for investment, I will detail a few facts about the country. China has a population of 1,393,783,836 persons as at January 2014 (Worldometres.info) with a population density of 145 residents in every square Kilometer. An interesting observation is that the country’s population growth rate is at a minimal 0.47%. The Chinese population's birth rate is at 12.37 births per a thousand population. The life expectancy of the people of China stands at 73.18years. On the other hand, death rates in China stand at 7.16 per a thousand population with the degree of deaths amongst infants standing at 1.51 per 100 live births. China has a literacy level of 95% (Data.worldbank.org) with Mandarin being the official language of the state.
The country has a huge number of natural resources. Sizeable amounts of tin, coal, iron, copper, zinc and mercury are the country's major minerals. Agriculturally, the state employs over 300million farmers to produce wheat, rice, potatoes and other crops. Pig farming and fishing also form (Bea.gov).These agricultural products form an integral part of the country’s exports as it imports soya beans, refined oils, petroleum gas, computer parts and copper ore.
In macroeconomic terms, China’s GDP stands at 9.24 trillion US dollars growing at 7.7%. The unemployment rate is at 4.10% with inflation rates of 1.40% as at January 2015. The currency value of the Chinese YEN is at 0.16 US dollars with a relatively stable exchange rate.
The Chinese monetary and fiscal policies have been a combination of both contractionary and expansionary policies. It adopts a neutral policy towards macroeconomic stability. The policy instruments have largely been through the Peoples Bank of China emphasis on targeting money supply and growth (Burdekin and Siklos).
The People’s Bank policy has been seen to be responsive to the disparities between the target and actual nominal GDP of the country (Holz).The country’s fiscal policy often focuses the aggregate demand through public expenditure and taxation to address the prevailing economic conditions. This year, China seeks to embrace an expansionary monetary policy to address the problem of rising debt levels (Reuters). China reacted to the 2008 global recession by loosening the earlier tightened monetary policy they had adopted in 2007. First, they did away with the lending restrictions that had initially curtailed the ability of the Chinese banks adequately to meet the demand for loans from their customers. Also, to ensure that a sufficient supply of funds is accessible to meet this demand, the government continuously reduced the share of deposits that banks had to deposit with the central bank (Lardy).
It is apparent that the government’s first response to the crisis was to increase the amount of loanable funds to its economic units. The authorities also adopted an expansionary fiscal policy by taking deliberate steps aimed at increasing aggregate demand (Tsang). They lowered the benchmark interest rates and increased government spending as it was in stimulus programme adopted in September 2008. The RMB4 trillion stimulus program was devoted entirely to the investment in development expenditures. The impact of the combined policy interventions was so significant that it saw China be amongst the first economies to improve from the financial recession (Cheng).
The current state in China is an encouraging one as indicated by a minimal degree of social, economic and political changes. Economically, it has embraced a free exchange economics. Besides, the country has seen a cut in the interest rates in less than three months. The interest cuts make China become an in an all-out easing economy (The Economist). This move in itself serves to propagate the Chinese neutral policy when it comes to dealing with monetary and fiscal policy. Politically, the country is still largely communist with the current ruler being Xi Jinping. Xi Jinping took office in March 2013 under the National People’s Congress. Under the current political leadership, China has experienced stability in its political arena.
China has its comparative advantage in various areas. Top on the list is that the country has a large labour force that enables it to capitalize on the production of labour intensive goods. The leading industries in China are in the power industry, Steel industry, Manufacturing and automobiles and various other economic sectors (Chunyan, Shuli and Dan). Investment opportunities in China currently lie in the advanced manufacturing industry. Urbanization is a significant theme in China and hence the design of progressive technologies to help address the associated challenges in say food and transportation (insights.som.yale.edu).
China is a very stable country that offers insurmountable opportunities for investment. The political, social and economic conditions are relatively stable with the country’s natural resources and general population being the primary economic endowments (Nolan). China has a great future both politically and economically owing to the many positive incentives and economic policies put in place by the authorities year in year out.
Burdekin, Richard C. K., and Pierre L. Siklos. 'What Has Driven Chinese Monetary Policy Since 1990? Investigating The People's Bank's Policy Rule'. SSRN Journal n. pag. Web.
Cheng, Y.-s. 'Fleeing From The Asian Financial Crisis: China's Economic Policy In 1997-2000'. China Report 38.2 (2002): 259-273. Web.
Data.worldbank.org,. 'Literacy Rate, Adult Total (% Of People Ages 15 And Above) | Data | Table'. N.p., 2015. Web. 6 Apr. 2015.
Insights.som.yale.edu,. 'Where’s The Investment Opportunity In China? | Yale Insights'. N.p., 2015. Web. 6 Apr. 2015.
Holz, Carsten A. 'The Quality Of China's GDP Statistics'. China Economic Review 30 (2014): 309-338. Web.
Lardy, Nicholas. 'The Sustainability Of China’s Recovery From The Global Recession'. SSRN Journal n. pag. Web.
Reuters,. 'China's Finance Minister Flags Wider Fiscal Deficit As Economy Cools'. N.p., 2015. Web. 6 Apr. 2015.
The Economist,. 'Elusive Prudence'. N.p., 2015. Web. 6 Apr. 2015.
Worldometers.info,. 'Population Of China (2015) - Worldometers'. N.p., 2015. Web. 6 Apr. 2015.
Bea.gov,. 'U.S. Bureau Of Economic Analysis (BEA)'. N.p., 2015. Web. 6 Apr. 2015.
Tsang, Shu-ki. 'Inflation Targeting In China?'. SSRN Journal n. pag. Web.
Chunyan, Zhao, Wang Shuli, and Ling Dan. 'On The Comparative Advantage Of China's Auto Engineering Industry'. Systems Engineering Procedia 3 (2012): 346-350. Web.
Nolan, Nicholas. 'Investment Opportunities In China'. SSRN Journal n. pag. Web.
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