Chinese Economy

Jatin Dua

MBA-IT

IMB201042@iiita.ac.in

This is one of the most interesting questions asked specially by the people of India. Some people believe that it's the Indian market that has not being getting the necessary driving force due to our decline in exports, some believe China`s hunger to takeover the world with cheap and unreliable goods that is being flooded all over the global market. Even though our politicians keep on saying that China is growing like hell but India is growing with ethics, but the bitter reality is that the pace with which China is growing has surprised the major global powers including USA. The latest news about China going one step ahead to Japan in the race of the largest economy and acquiring the 2^nd position just below USA has once again proved that China is rapidly moving towards being the biggest superpower. But the biggest question is that how come China manages to grow with such a fast pace? This time I have tried my level best to find out the optimum reasons for the same.

China is growing so fast that it seems to break world records almost every week. With 1.4 billion people, China has more mobile phones than any other country. It has more high-speed rail lines and wind power. It has more number of internet users and is the world`s number one importer of minerals. It has already surpassed Germany to take up the number one spot for exporters. Now since China has recently left Japan which was at the number two spot for the last 43 years, just after USA, the experts believe that within a decade, if the business goes on like this then China would easily outshine the US economy too, as the Chinese economy is growing by 10% and the US`s economy is growing by 3% a year perhaps.
China like other emerging markets was hit by Global financial crises and recession, its aggressive fiscal and monetary stimulus has resulted in strong economic recovery and a decline in the current account surplus. Monetary stimulus is nothing but the manipulation of the available money within the economy. This can essentially happen in two ways:

1. Alter the reserve ratio :- reserve ratio is the percentage of assets that the banks have to keep with itself as deposits, like the RBI does in India. Lower the reserve ratios, more money the banks can flow out in the market.

2. Lowering discount rates :- these are the rates which are charged by the banks when a loan is taken from the banks. Low rates means more money in the market.

On the other hand, Fiscal stimulus means increase in Governmental spending (in infrastructure, roads etc) and higher tax cuts. This would ultimately improve the job opportunities and also the purchasing power of the people. The word "surplus" refers to that position when there is more supply than demand. At that time China rebalanced its growth by focusing less on exports and more on domestic demands and consumption. China`s real GDP growth rose by 9.1% in 2009, as fixed investments (investment in fixed capital) and consumption contributed approximately 8.2%. the exports fell down by 4.6% that year. In the first quarter of the year 2010, the GDP rise was 11.9% which was a remarkable comeback. China`s policies to boost consumption led to sharp decline in surplus. During recession, people use to spend less and save more. China made such policies that the people were bound to spend and thus the money continued to flow in the market. China increased pension payments by 10% and provided consumer subsidies (financial assistance in the form of money or price cuts) on goods such as appliances and automobiles. To support consumption for longer time, these polices actually improved their social spending by 18%. No doubt, the private companies would have faced a lot of decline in their profit margin, but during the time of recession where beggars can`t be choosers was the condition, the firms were happy that at least they were earning revenues somehow. They also increased the minimum wages. By these steps, the purchasing power of the people increased which increased their consumption and money continued to flow in the market. Infrastructure also played a massive role in it. The infrastructure improved mostly in the under-developed western and central regions helping in improving industrialization and urbanization. It improved incomes of the rural labor and housing investments were made (housing investments means investments made under domestic means, example, by buying house, flats, land, etc).

No doubt, China faced economic slowdown, but its slowdown was not as intense then its other business competitors and moreover, its economic recovery was more faster and earlier then them. This resulted in much higher growth in Domestic Demand relative to its competitors. According to People`s Bank of China, China`s economic output has been above economic potential since the end of 2009. Potential output is the highest level of GDP. If actual GDP rises and stays above potential output, the Inflation tends to rise, which means that the demand is more than the supply. This is due to the limited supply of the workers and their time, capital, natural resources, management skills and working skills, hence the prices increase.

Coming to the social benefits that China gets, which indeed makes the Chinese different from the whole world. In China, the Government has been very growth conscious. They believe in a very simple thing, "it's the people who make the country and its our duty to make them successful to make our country successful". The government in China gives salaries according to the skills and needs of the employees. For instance, an Engineer in China gets a salary of say 1 lack (in Indian currency ) according to his knowledge and skills, while a clerk who has a family of four children also gets the same salary. The only difference is that an Engineer gets the same salary according to his performance and a clerk gets his salary according to his requirements keeping in mind that he has a big family to look after. This thing cannot be started in a country like India, reason being that if the government starts with such a thing then we Indians would rather start making babies instead of working harder. I know I am being very rude in my views but we all know what kind of people we Indians are.

China being the riches, also has some social problems to deal with. The world has seen frequent riots in this part of the world, which has caused devastating results in the past. We Indians mostly find China to be one of our hardest neighbors because we have our own problems that are believed to have been initiated by China. The Maoist problem is growing in India and it is believed to have been funded with arms, ammunition and money through China. Recently a news came that the Chinese pharmaceutical industry has been using the tag of "made in India" on their drugs and has been smuggling it to different countries and those drugs have been found to be expired and unfit for consumption. This rose a scene of tension between the two countries for a while to which the Chinese government has promised to look into the matter. Also in a meeting regarding the border issues, the Chinese government gave an indication over their disrespect towards the Indian democracy. Although India has been very firm in dealing with China but things have been worrisome for a long time now. Moreover, Chinese has been flooding its cheap products in India which is slowly taking over the whole Indian market. It is quiet obvious that people anywhere in the world would prefer price more than the quality of the product. This thing is favoring China and has been an easy source of money throughout. The Indian builders prefer to buy a Chinese Crane rather than Indian or any other countries`, just because of the simple reason that they get a cheaper one. A Crane is required to carry heavy loads at the site of construction, it costs an easy 1.20 Crores if you tend to buy it in India. Most of the constructors give their cranes at rent and get revenues. A crane could fetch them 10,000 Rs. a day. Now in a country like China, our Indian builders get the same crane in an affordable rate of 53 lack rupees. Including the duties and taxes, the rate reaches to nearly 65 lacks, which is still affordable. The builders get a good opportunity to spend less and save more. These are the certain things that are taking our business out of our country towards the Chinese.

Now lets take the topic to a different and an equally important issue to which we both (India and China ) are lagging behind - Environment. And whenever I say the word `environment`, the first thing that comes in my mind is the "Copenhagen summit". India has given a powerful statement under the Kyoto Protocol that by the year 2020 India would succeed in cutting down its carbon emission by 22% of which it has now. An equally powerful statement has been given by China with China claiming to reduce its carbon emission by 40 - 45 % by the year 2020. No doubt, India is very serious at its stand and has already started working towards getting their task fulfilled. The various Corporate(s) in India has also understood its responsibilities and is now working to make their technology green. Wipro has been the first company in India that has made the first Green computer in our country. This Green computer has kept India into a very strong position and its business has already doing wonders in the domestic level. Moreover, major companies like the Tata(s) and the Infosys have also taken up this responsibility to clean and green our environment. Our Government is also paying heeds towards healthy environment, it has been proposed that a major portion of the revenue earned during the commonwealth games that is going to be held on October, would be spent on the environmental well being. The government is also finding out a solution to curb down the pollution rate that would be produced when their nuclear reactors would be finally starting.

On the other hand China has made a substantial improvement in the life of the mobile battery. They have introduced mobile phones that has a battery life of around 30 days which is a really commendable job. But there are certain other things that are making the Chinese run for their money as far as the environmental conditions are concerned. The recent documentary by BBC have shown that the Chinese dump yard is filled with electronic wastes and residues, such as computer chips, used batteries, useless motherboards and all sort of hardware wastes. These wastes tend to emit radioactive waves. There is no other way to dispose these wastes then to burn it or burry them. Burying these wastes have actually led to rise in soil pollution upto a level of 180 times more that what is permitted under the World Health Organization, and burning them produces a blue colored smoke which apart from polluting the atmosphere to a high level are causing nervous breakdown problems, severe headache problems and various nasal and physical problems in the people around the nearby villages. India rightly said," although we are growing at a slower pace than China, but we are growing with Ethics".

Of course guys, we have been working harder than China, because working with ethics is the hardest thing in the world. We are democratic people and democracy believes in giving legal rights to its people for the power of expression, speech, adoption of any culture etc, which makes us different from a country like China. We take care of everyone and also the interests of those people who value our country a lot. We give opportunities to those who deserve and to those who can`t afford to get opportunities. We are trying to curb down the difference between the rich and the poor by giving reservations. We are trying our level best to make our people prosperous, and that too by keeping our responsibilities regarding economy, environment, good education, principles, ethics, job opportunities, legal rights for both male and female, religious tolerance etc. in our mind. Our first priority is our people.

It is rightly said," A Country Progresses, When the People Progress".

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