Development of Chinas Economics

victimisation of chinawarew ars EconomicsCHINA 2014 prorogue of Contents1. Is chinaw atomic design 18 a developing country?2. Theories/ Models of ingathering and developing Applied on mainland chinaw atomic number 182.1. Rostows Stages of harvest-feast2.2. The Harrod-Domar Model Growth Model2.3. Lewiss Theory of Development2.4. Structural Change and word form of Development2.5. International Dependence Revolution2.6. Neo cliqueical Counterrevolution2.7. Coordination Failure and the whopping Push3. beggary in chinaw are3.1. Headcount big businessman Gini Co-efficient3.2. scantness Gap3.3. Poverty Trend Analysis4. Bibliography5. term Count1. Is mainland China a developing country?China is a big sparing in absolute terms, with GNP second only to the United States. patronage its remark adapted economical development over the past decades, China system a developing nation.China is the realnesss most populous country, with a tribe of 1.3 billion in 2011. Its non far john India, which contains 1.2 billion majuscule deal and is predicted to overtake China in the next two decades. China ranks to a lower place the 100th place in the world in terms of per capita gross domestic product, which is 3700 US dollars and the country is classified among mid(prenominal)dle and low income level countries. China is behind the majority of the developed world in terms of per capita possession of essential resources, in more or little cases, even far below the worlds number. Its fresh body of water reserve is only 1/3 of the worlds average, scorch consumption 1/2 and natural gas 1/5. Moreover, a world of 150 trillion is caught in distress and, is living on less than 1 US dollar a day. 83 one thousand thousand stack are living with disabilities in the country. With the second largest number of abject in the world after India, poverty reduction dust a fundamental ch every(prenominal)enge. (WorldBank, 2014)Chinas care mix is dominated by commodity trade that is resource and labor consuming, putting it at the lower end of the spheric industrial chain as the know leadge based trade in services only accounts for a small portion in distant trade. There are shortfalls in scientific and technological innovation cogency that impede the countrys core rivalrousness. Furthermore, the country faces challenges in the areas of enthronization in instruction which is low and in the areas of medical services and social security. Inequality remains richly, rapid urbanization poses threat to environmental stability and there are external imbalances. China also faces demographic pressures related to an aging tribe and the internal mig proportionalityn of labor. (ChinaDaily, 2013) (Euractiv, 2012)2. Theories/ Models of Growth and Development Applied on China2.1. Rostows Stages of GrowthRostows theory states that each country needs to go through five imminent stages of development. Observing China in the mise en scene of the Rostows Mod el of Development, it is reasonable to claim it to be in the tail stage, which is the drive to maturity. China remained in the third stage for several decades imputable to its inclination towards remaining a closed providence. As it opened its doors to the world in the 1990s, it saw it self elevating to stage four. China benefitted by a great append in its GDP (as shown by the graph below) and immaterial investing as their interaction with the world increased (Jacobs, 2014)Figure 1 index of Chinas Real GDP GrowthFigure 2 Cumulative FDI in ChinaEconomicreforms of 1978 caused Chinas economy to advance nine times. In 2002, China replaced US as the biggest receiver of foreign direct enthronisation amounting up to $52.7 billion. It accounted for 25% of the global trade expansion. aside from being a elevated exporter to US and Japan, China is a high consumer as well. China also became the worlds second largest importer of oil, obligation after the US. Its consumption of raw mate rials such as steel and pig became greater than that of the US. In 2003, it consumed 55% of the worlds cement. As China secured its membership of the World employment Organization, it became a dominant player in the economy (Marcos Chamon, 2011).2.2. The Harrod-Domar Model Growth ModelHarrod-Domar stupefy extrapolates that development is a phenomenon driven by savings and investments. China, in light of the model, faced some ups and downs in terms of savings and investment. The biggest dip in the investment came 1960 to 1962 as the presidential term initiated the owing(p) outflow Forward campaign leading to huge nationalization and hence a major fall in investments. smirch Economic Reforms in 1978, China saw a stable entirely increasing rate of investment in China, with the usual cyclical fluctuations. Simultaneously, China has seen a rise in savings from 35% in 1990 to nigh 50% by 2012. Interestingly, mainly the younger population and the elder population wee-wee shown a saving switch off. This is due to decreasing overt cooking of facilities such as education and health prompted the younger gene proportionalityn to free for hereafter education costs and the older generation to save for future health costs. (Marcos Chamon, 2011), (Labaria, 2012)2.3. Lewiss Theory of DevelopmentThe essence of this model is to allocate resources more efficiently in the developing world where there is an pour out of labor in the traditional agriculture arena that needs to be dissolved into the industrial heavens work root for (Anon., 2008) Chinas farming(a) percentage to GDP is around 12% and catering to almost 43% of the agricultural employment share, showing that Chinas labor force is s till not fully transferred to the industrial sector. However, China is still increment fast. According to Spence, high sparings and investment where public spending was on education, infrastructure, international trade, technological up gradation and productive employme nt were all factors that led Chinas phenomenal growth. Although there was agro to industrial migration, people were more towards private sector than state owned enterprises. For example, between 1995 and 2005, the self-command of enterprises cut by 38% whereas private, foreign and individual grew in fall by 35%. The reason for this could be that the capital to output signal ratio for private was frequently greater than the state owned whizzs i.e. 6.7 vs. 3.3. Along with investment, China focused on improving its exports from 2004 onwards. China used the investment for engineering that proved beneficial from 2000 where the number of distinct applications were 100000 that shot up to 275000 by 2004. As a result, China was the one with the most patent applications from the BRIC nations.Figure 3In compliance with the Lewis model the economy was able to absorb the extra agricultural labor with a rise in the marginal productivity of labor which is still lower than the wage for the a verage productivity of labor. (MARCO G. ERCOLANI, 2010) In 2010 China had not reached the third stage as such as there was still a gap in labor productivities between both the sectors.2.4. Structural Change and Pattern of DevelopmentChenerys structural change model assesses the characteristic features of development offset derived from the different levels of per capita income of countries. For China, the shift from the agricultural to industrial production is seen in the urban center called Shenzhen which was once farming and fishing village in 1980s and grew into the richest city in 30 categorys, as a result of foreign investment and manufacturing. (Shenzhen Facts, 2013) This example only keep also explain that there was calm down accumulation of both physical and human capital. The rapid growth in Shenzhen was possible due to the capital, labor, technology and information. (Shen, 2008) . These changes were accompanied by shift in consumption patterns to more appropriate one s of demand for manufactured goods and services. Although one scum bag say that China has tried to happen upon the decline in family size to cater to its overall population, the distinction between different regions is still prevalent. thereof it cannot be inferred if the child quality is preferred over the child mensuration in China.2.5. International Dependence RevolutionThe trend of aid veritable by China has experienced various fluctuations. Up until late 1970s, China was a net donor, but when the Chinese economy started its openness policy, it became a net receiver of aid to finance the industrialization, mainly from Japan. However, this aid preferably than being pure loans or grants was more in the form of economic co-operations agreements which gave both China and Japan a win win locating rather than China getting exploited by Japan. Post mid 90s however (after the success of industrialization was manifesting), the aid received by China started to drop drastically an d due to the introduction of the Grand Plan of 1994,China started to bring about the potential of securing resources and export markets abroad and started investing heavily in Africa, the trend of which continues to today . Hence instead of China being exploited by the cores, it is now in a position to exploit Africa. The neocolonial dependence model cannot be applied to China. (Shimomura Ohashi, 2013)The Dualistic Development Thesis however applies exceedingly well to China, as evidenced by the disparity in public and private spending on education and health (public spending is almost constant whereas private is increasing (WorldBank, 2014)) or by the vast income disparity amongst Chinas urban and regional areas. Reasons for this co existence phenomenon are discussed under Poverty in China.2.6. Neoclassical CounterrevolutionNeoliberals suggest that by allowing competitive free markets to function, economic growth will begin because world markets are efficient. In 1979, China was a stiff command economy prey, to majorinefficiencies do it poorerthan India. The government focused on heavy industries, ignoring agriculture and the private sectors. Their loss leader Chen, recognizing the importance of market and socialism endedThe Leap Outward, allowing the firms tobenefit with the government from the market functioning, showing that Market Friendly approach is call for.Public-choicetheory discusses that by the self centered intervention of government, not only does misallocation of resources occur, but people are left with lesser choices and freedom. China has now shifted to a mixed economy with reforms which shall allow China to reach 60% of Americas per capita GDP. (TheMoneyIllusion, 2010)In the last 30 years, the Chinese economy has seen a shift to a hybrid economy after China joined the World Trade Organization in 2001. Theprivatization of 90% of the urban residential schemes and real earth can be marked as an economic success because it led to a growth in per capita income 8.1% from 1978 to 2004.Neoclassical free-market argument emphasizes onliberalizationof national markets, which draws spare domestic and foreign investment, increasing the rate of capital accumulation. China has acceptedliberation by allowing free trade, to the extent that China, a part of the BRIC nation now has the power to shake the strength of the US Dollar however the role and allow of government is still strong on the economy and the people. An example of this is the enforcement of one child policy. Although the government has now relaxed these rules, to extending to a two child policy, this was needed to control the geometric progression of the population versus the arithmetic progress of resources which would have led to increased poverty. (Coase Wang, 2013)2.7. Coordination Failure and the Big PushAccording to Todaro coordination mishap occurs because of the inability of economic agents to coordinate their behavior resulting in an equilibrium in wh ich everyone ends up being worse off and occurs because of pecuniary externalities, asymmetric information, and high wages of workers which warrant government intervention which Todaro named the Big Push. (Todaro Smith, 2012)In October 1949 the multitudes Republic of China was established by the Communist Party. The fellowship aimed to nationalize the agricultural sector and use it to finance the growth in industrialization to coordinate the activities of the economic agents in the industrial sector. As a result of this the Industrial sector thrived and grew. (Young, 2014)In 1958 the Great leap out front was announced. Under this communes of farms were formed and private farming was abolished. The purpose of this was to increase output via greater cooperation and greater physical effort. However this failed resulting in drop in agricultural production, three years of famine and millions of deaths. The government responded by initiating policies conflicting to that of Big Push m odel, i.e. the government allowed for private farming and slashed investment in industrial sector which led to improvements in the exertion. (Young, 2014)Lastly the Great ProletarianCultural Revolution of 1966 resulted in a negative impact on industry production resulting in a decade of confusion and strife. (Young, 2014)So it can be inferred that the Big Push model advocating government intervention has resulted in more costs than benefits for the Chinese.3. Poverty in China3.1. Headcount Index Gini Co-efficientYEARHeadcount ratio(% of population, at $1.25 a day)Millions of poor(people less than $1.25 a day)Population (in billions)(gap headspringer)199060.18683.21.1519911.16199263.80743.31.175199353.69632.71.188199459.78712.51.201199554.05651.21.213199636.37442.81.226199747.84588.51.237199847.97595.81.259199935.63446.31.26020001.26920011.277200228.36363.11.28520031.29320041.300200516.25211.91.30720061.31420071.321200813.061731.328200911.80157.11.334Figure 4 WorldBank, 2014The tre nd shows that the headcount ratio was decreasing rather at a slow rate from 1990 till 1999, however the headcount reduced by almost 50%. By 2005 the headcount further reduced by 50% and then step by step till 2009 the headcount came to about 11.8%. It should be keep in mind that the population of China had been increasing around 0.01 billion each year and still the headcount was reduced. From the highest 743.3 million poor in 1992 to almost 157.1 million poor in 2009 is an achievement. (WorldBank, 2014)According to Yu Xie, a sociologist from Michigan University, China suffers from one of the highest levels of income inequality in the world. Inequality prevails even in comparison to other(a) countries that have similar standards of living. The Gini Coefficient has shown an increasing trend reaching 0.472 in 2012. (Gapminder, 2014)3.2. Poverty GapThe World Bank index presents that Poverty Gap in 2009 was 2.8, but data for the latter years was not available.Beijing and snatch have r eached high developmental levels equivalent to Cyprus and Portugal because of the governments efforts via provision of healthcare, education and welfare, but provinces such as south-western Huizhou are comparable to Namibia or Botswana. The city life is becoming increasingly expensive and the middle class is being squeezed.3.3. Poverty Trend AnalysisExtreme poverty define by percentage of people living below $1.25 per day fell till 1987 in China after which it increased sharply to 64% in 1992. After which it declined in 1993, increased again in 1994 and then declined continuously to 13% in 2008. However there were stalls in poverty reduction during the late 1920s and late 1990s. So the meaningful increase in poverty in China during the late mid-eighties was because of the Communist Partys policy to nationalize the agricultural sector part of their Great leap forward strategy which backfired leading to a significant increase in poverty in the rural areas of China. (Ravallion Che n, 2007)The number of people below the poverty line started to decrease after the stage in 1992 because ofmigration from rural to urbangrowth in primary sector due to the about face policy after the Great Leap Forwardeconomy wide policies including agrarian reformscontrolling of inflationincrease in government spending as part of the effort to achieve the MDG on poverty and hungerThe rate of decline in poverty varied from industry to industry and among provinces because the rate of growth in these was not the same. (Ravallion Chen, 2007)As shown by the figure below, economic activity is prevalent at the coastal regions and declines as we move towards the interior of the country.Figure 5 GDP/Capita by province 2002 (US$)As the economy opened its doors to the world, it saw an inflow of investment in this coastal region. However, the benefit has not been transferred to the inner regions, the urban residents located at the east earn thrice as much as the rural residents (Roberts, 201 4), (GeoCases, 2002)Figure 6 (GeoCases, 2002)4. BibliographyAnon., 2008. Introduction to Economics of Development. Online getable at http//www.pauldeng.com/teaching/development/lectnotes_8_econ175a.pdf Accessed 2014.Bertaud, A., 2010. GOVERNMENT INTERVENTION AND URBAN come to MARKETS THE CASE OF CHINA. ledger of Architectural and Planning Research, 29(4), pp. 335-346.ChinaDaily, 2013. China Daily. Online visible(prenominal) at http//www.chinadaily.com.cn/opinion/2013-01/10/content_16100813.htm Accessed 2014.Coase, R. Wang, N., 2013. How China Became Capitalist. Online Available at http//www.cato.org/policy-report/januaryfebruary-2013/how-china-became-capitalist Accessed 2014.Euractiv, 2012. Euractiv. Online Available at http//www.euractiv.com/global-europe/china-developing-country-analysis-498377 Accessed 2014.GeoCases, 2002. China A Third Generation Newly Industrialised Country. Online Available at http//www.geocases2.co.uk/printable/China a third generation NIC.htm Accessed 2 014.Jacobs, J., 2014. Rostows Stages of Growth Deveopment Model. Online Available at http//geography.about.com/od/economic-geography/a/Rostow-S-Stages-Of-Growth-Development-Model.htm Accessed 2014.Labaria, E., 2012. China and Development. Online Available at http//elirozz_labaria.tigblog.org/post/7228633?setlangcookie=true Accessed 2014.MARCO G. ERCOLANI, Z. W., 2010. AN EMPIRICAL ANALYSIS OF THE LEWIS-RANIS-FEI THEORY OF DUALISTIC stinting DEVELOPMENT FOR CHINA. Changsha, Chinese Economist Society.Marcos Chamon, K. L. E. P., 2011. The Puzzle of Chinas Rising Household Saving Rate. Online Available at http//www.voxeu.org/article/puzzle-china-s-rising-household-saving-rateRavallion, M. Chen, S., 2007. Poverty, Chinas (uneven) Progress against. Journal of Development Economics, pp. 1-42.Roberts, D., 2014. Chinas Income-Inequality Gap Widens Beyond US Levels. Online Available at http//www.businessweek.com/articles/2014-04-30/chinas-income-inequality-gap-widens-beyond-u-dot-s-dot-level sShen, J., 2008. urban Growth and Sustainable Development in Shenzhen City 1980-2006. Open environmental Sciences, Volume 2, pp. 71-79.Shenzhen Facts, 2013. Shenzhen Facts. Online Available at http//www.chinahighlights.com/shenzhen/shenzhen-facts.htmShimomura, Y. Ohashi, H., 2013. A Study of Chinas Foreign attend An Asian Perspective. 1st ed. Tokyo Palgrave Macmillan.TheMoneyIllusion, 2010. The money illusion. Online Available at http//www.themoneyillusion.com/?p=5363 Accessed 2014.Todaro, M. P. Smith, S. C., 2012. Economic Development. s.l.Addison-Wesley.WorldBank, 2014. Poverty Data by World Bank. Online Available at http//povertydata.worldbank.org/poverty/country/CHN Accessed 2014.WorldBank, 2014. WorldBank.org. Online Available at http//www.worldbank.org/en/country/china/overview Accessed 2014.Young, E. P., 2014. China. Online Available at http//www.britannica.com/EBchecked/topic/111803/China/71007/Economic-policies Accessed 24 9 2014.5. Word Count2571 excluding cover page, T oC, Bibliography and In-text HeadingsDevelopment Economics ReportPage 1