Home  -  Back Issues  -  The Team  Contact Us
Linking Young Minds Together
     Volume 2 Issue 31| August 1, 2010|


   News Room
   Just a Thought
   Did you know?
   Going Global
   Book Review
   Last & Least

   Star Campus     Home


China's economic miracle

Md Asiful Haque Chowdhury

“OUR future history will be more determined by our position on the Pacific facing China than by our position on the Atlantic facing Europe" -- former President Roosevelt of the United States of America said this in 1905. Then Britain was the largest economy and USA was a rising power. A 100 years later China is the rising power and USA is the largest economy. Today many commentators think this assumption of Roosevelt is definitely going to be true, which means in coming days China is going to be the largest economy in the world. But the question is how China has achieved and would be maintaining this economic growth. Before knowing the means we have to know what exactly economic growth is which is not desired as a short-term phenomenon.

GDP (gross domestic product) is calculated by production or income or expense. In China's case, the factors behind this growth are, firstly, education resulting in an increase in skilled manpower and productivity, secondly, an export which has led to a huge balance of payment surplus, thirdly, low exchange rate and high rate of inflation, and lastly, government investment and intervention. Growth is sometimes measured by the prices of trade of final goods or services produced in a country generally in one year. Final goods or services mean which are ready to be used without any further procedure.

China's main weapon for economic growth is trade. Chinese products have a lot of demand abroad. The reason behind this high demand is the price. These products are very cheap, because China's labour is cheap. China has the world's largest population and their government spends a lot of money on their education and various training to increase their skills. So these educated and skilled workers have more productivity than other workers. Consequently, China's highly productive but less custody labours produce cheap products which enjoy good demand in world market.

Recently China has overtaken Germany as the largest exporter. But the recession has plunged Germany's export. On the other hand, China's cheap products have filled the gap for Germany's products in this time of credit crunch. According to Financial Times (2010), China's exports were worth $1,201.7bn and Germany's $1,121.3bn. Thus China has the best favourable balance of payment in whole world at this time. According to nationmaster.com, China has balance of payment surplus of $371,800,000,000 whereas the world's largest economy USA has the worst balance of payment with a huge deficit of $731,200,000,000.

Exchange Rate and Inflation
Currency exchange rate has a great impact on trade for a country. If we think about Chinese economy, their undervalued RMB (Chinese currency) is one of the main reasons behind their large number of exports. Because of the low price of RMB, other countries' currencies can buy a lot RMB which means other countries' people can buy Chinese products at a cheaper rate. This exchange rate is a great advantage for China over UK, Germany, USA and other industrial countries. And reason for cheap exchange rate is inflation. Despite having an emerging economy and huge current account surplus against USA, Chinese currency RMB's (it is also called Yuan) inflation rate is high. It means the price of RMB is decreasing despite their unbelievable economic growth. But this inflation is helping China to keep their exchange rate low and thus they can increase their exports.

Chinese government is always trying to achieve growth by any means possible. Many economists think that they are undervaluing their currency to get an edge over other countries that are seeking export-led growth. Their currency is being undervalued by government intervened inflation which is giving them a very low exchange rate resulting in a high demand for Chinese goods in world market. Chinese government also invests a lot of money in education, professional training, infrastructure etc. If we look at the history of current developed countries, we can see government intervention behind their economic growth. There is no exception for China also.

Why China might not achieve the growth
However, Chinese government is investing money on some unnecessary infrastructure projects. According to former World Bank Adviser Yu Yongding, these projects could drain their fiscal muscle, which will send China to its previous position.

So to remain with fiscal power China has to be cautious with investment in various infrastructure projects. Secondly, some statisticians predict that China's information on economic growth, unemployment, education, infrastructure etc is made up. According to those statisticians, Chinese government is giving fake information on their production, economic growth, GDP and everything to present a different position of China to the world.

Thirdly, some countries such as USA is complaining about China's government intervened inflation which is keeping Chinese currency low and keeping Chinese export high. Those countries also have given threat that they would introduce tariff on Chinese products, so those products will lose the main demand factor -- cheap price. Fourthly, recent conference in Copenhagen reveals the data of pollution, which shows that the trend line of China's carbon-dioxide emission is very unimpressive. By those figures it is assumed that China will emit double amount of carbon-dioxide than USA in 2030.

Most of the reasons for China's miracle growth are a bit surprising but nothing is impossible. On the other hand, some statisticians are telling us that data of China is not real. But it is also quite unbelievable that all the information of China is made up. Famous Economist and Economics Reporter Robert W. Fogel's claim that China's economy will reach $123,000,000,000,000 in 2040 means $123 trillion worth economy by 2040 is definitely going to overtake USA as world's largest economy.

(The writer is a 2nd Year Student of Business Economics (BA Hons), Vice-President and Spokesman of Business and Economics Society (2010-2011), University of Greenwich, London, United Kingdom)


Copyright (R) thedailystar.net 2010