National Income Accounting : A Case Study Of CHINA

Group 7
Kota Saranya Pinki Mandal Shilpa M Shivraj D Sneha Mehta Tapan Udaykumar Desai

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Economy of China  CHINA ranks 2nd in terms of GDP calculated by purchasing power parity method with GDP of $ 9. . S. JAPAN.  It ranks 4th in terms of GDP calculated by nominal method with gdp of $ 2.S.412 trillion succeeding U. GERMANY.22 trillion succeeding U. .

9 %..  Its GDP growth rate is 9. .Contd.  Its gdp per capita in nominal terms is $1703 and in ppp terms is $6200.

Male Female Ratio 120 100 80 60 FEMALE MALE 40 20 0 2000 2001 2002 2003 2004 .

1 0 2000 2001 2002 2003 2004 % CHANGE YOY BAISIS .5 0.7 0.9 0.6 0.8 0.Population Growth YOY % Basis % CHANGE YOY BAISIS 0.3 0.2 0.4 0.

120 100 80 60 RURAL (MILLION) URBAN (MILLION) 40 20 0 2000 2001 2002 2003 2004 CHINA brought economic reforms in the year 1981 and from then it is moving from command economy to market economy . .

 GDP at factor cost (GDPFC) is the sum of all factor payments (wages. rent. profits and depreciation). interest.  GDPFC= GDPMP – Net indirect taxes . generally one year.Gross Domestic Product  The sum of market value of all final goods and services produced in a country during a specified period of time.

4 85.Year Real GDP GDP annual Rmb Index in GDP per growth billion real head rate at terms Rmb (%) current prices 100.2 204.8 106.9 200 216 218 185 173 21.7 140.8 -0.9 145.7 122.4 130. 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 188.6 205. civil war and land reform ended: GDP up 15.0 5.7 143.6% in real terms.5 67.6 148. .8 119 142 144 150 165 168 15.6 120.0 115.9 82.6  1958-59 So-called "Great Leap Forward" devastated agriculture: result was falling GDP in 1960-62.8 15.3 8.3 -27.0 102.6 147.0 114.5 128.3 -5.2 6.6 4.9 91.9 155.1  1953 Hyperinflation conquered.

8 272.4 358.3 145.7 -4.  1976 Widespread earthquakes.4 172.4 327 316 8.4 250.3 242.7 -1.1 279. GDP fell.0 10.0 3.6 186.9 123.4 299.3 193.3  1963-66 Partial restoration of market economy in the countryside promoted faster growth of agriculture.1 223.0 214.6 251.7 294.6 299.9 19.8 392.2 332.4 7.4 171.2 18.6 366.0 181 208 240 254 235 222 243 275 288 292 309 310 10.3 320.7 183. hit industrial centres.8 177. 1975 1976 398.  1969-70 High growth rates followed the restoration of order after the "cultural revolution".2 237.8 225. while agricultural output was hit by drought.7 -5. that was initiated by Mao in mid-1966 and effectively ended by People's Liberation Army intervention in 1968.8 7.3 17.9 2. followed by Mao's death and the arrest of the Gang of Four.  1967-68 Production undermined by the so-called "Great Proletarian Cultural Revolution".Year 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 154. policy paralysis resulted from the anti-Deng campaign.6 .6 214.1 16.

8 11.2 1987 1.2 1.1977 422.5 629.2 339 1978 1979 1980 1981 1982 471.287 10.1 575.104 1.1 896.5 1.8 9.3 1988 1.161.1 3.5 717.8 1992 1. .0 362. and non-state 11.4 403.3 4. Foreign investment fell off after the Beijing Massacre of June 1989.8 451.103.2 9.333.5 1.2 320.6 507.2 13. Price stability was achieved by cancelling large fixed investment projects.690.1992 massively boosted foreign direct investment inflows .9 15.4 580 692 853 956 1.2 14.8 1989 1.0 2663.9 2.512 1.5 379 417 460 489 525  1983-85 Double-digit real GDP growth 7.660.6 accompanied the first wave of foreign investment into China.1 593.020. 7.5 547.6 7.854.634 1.8 1991 1.8 5.2 529.454.8 in panic buying and runaway inflation. slowing domestic demand.9 805.6 11.7 enterprises started to develop.879 2.2 989.1  1989-91 Growth slowed which resulted 1983 1984 1985 1986 698.196.492.5 8.228.355 1.279.7 1.8 912.9 1990 1.8 1.8 486.

1 11.  Despite efforts to cool the overheating economy.8 21.084 8.923 4.0 2.788.0 10.847.530.9 6.5 12.5 9.8 10.4 4.1 9.661.040 16.622 9.675.3 7.542 12.169.959. .3 2.576 13.114. at the end of 2005 GDP has recently been grossly underestimated as a result of a failure to take into account the rapid growth of the services sector.446.038 7.858 8.9 5.854 5.1 8. growth rates for 2003-2005 are now recorded at around 10% per year in real terms.877.8 6.4 3.463.422.8 8.336 14.398 10.9 7.3 13.087.8 18.5 8.9 11.2 2.1 24. especially among the urban population. Living standards continued to rise. As a result.054 6.965.  However. the officially recorded GDP growth rate was 11.5 12.4  1993 Growth rates subsided gradually in subsequent years.745.834.8 7.3 3. producing a so-called "soft landing".206.6 10.304.1 10.6 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2.8 7.946.3 9.159 7.5 2. as evidenced by the proliferation of consumer durables.033.987.4% in 2007.939 3.1993 1994 1995 1996 1.0 8.3 15.1 3.5 2.386.582.

506.404. The stimulus succeeded in preventing a dramatic fall in GDP growth in 2009 and in providing a sustained recovery in 2010. .2 9.9 8. when the real annual GDP growth rate rose to 10.5 9. As global conditions continue to deteriorate in late 2011.7 • 2010 40. In the face of forecasts that this might drop below the rate at which school leavers can be absorbed by the growing economy (7%-8%) the government decided to pump Rmb 4 trillion into the economy in the form of an economic stimulus package consisting largely of investment in fixed infrastucture and human capital.4 • 2011 1st 3 qtrs 32. GDP growth is expected to subside to around 9.2 10.6 • 2009 34. it seems likely that economic growth will fall to around 8% in 2012.4%. The government does not have the option of returning to stimulus on the massive scale of 2008-2009 and has to be careful not to stoke inflation.201. With stagnation in China's major markets in 2011.• 2008 31.2% by the end of the year.069.4 In 2008 the global economic crisis began to reduce China's growth rate.

Measurement of National Income • Three approaches of measuring NI: • Product Approach • Factor Income Approach • Expenditure Approach .

658 4.501 3.15317641 7.0397003 9.252 8.90645957 8.003 4.43122966 10.185 9.3145175 11.8 1.534 Growth rate 3.921 6.35690141 9.50072387 3.135 1.062 1.0135604 16.597 5.639 9.Year 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 GNI 3.004 8.6448107 10.25 1.04036873 7.384 2000 2001 2002 2003 2004 .66575628 8.86839404 5.1597606 20.5290153 12.61739875 5.208 5.8950979 8.

9920245 2006 1.109 3.. 2005 1.Contd.502939 .401 18.545 11.9254534 2007 1.55641231 2009 2.970 12.732 10.1444096 2008 2.

7% since prices were controlled by state Initial Period of Reforms Second phase of opening up in 1992 • Boosted FDI inflows into coastal areas • Started a wave of government investment in Shanghai • Resulted in surge in trade . GDP growth and Inflation followed .Inflation Rates in China • Artificially lower prices resulting from state subsidies for every basic product Before Reform • Low inflation rate of 0.

How Inflation Measured In CHINA? Inflation is measured using four price indices GDP deflator from 1978 Consumer Price index (CPI) from 1985 Retail price Index (RPI) from 1978 Producer Price Index (PPI) from 1979 .

8 18.38% 115.6 165.2 3.8 114.8 3.4 14.5 106.81% 87 160.6 337.6 24.7 181.39% 106.32% 77.12% 100 170.00 -70.41% 182.09% 158.Consumer Price Index.09% 179 327.5 6.80% 186. Inflation Rate and GDP deflator for China Years 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 General CPI (1985 = Inflation Rate (%) @ (Year-on.4 -0.2 17.9 258.GDP Deflator # (1990 100) Year change in CPI) = 100) 100.9 8.5 329.50% 73.2 302.69% 131.97% 94.29% 189.1 2.3 7.2 334.7 6.8 17.7 -1.6 135.81% 191.4 .2 208.

1 0.Inflation Rate (%) @ (Year-on-Year change in CPI) 0.2 0.3 0.25 0.05 Inflation Rate (%) @ (Year-on-Year change in CPI) .15 Inflation Rate fluctuated overtime and became negative (deflation) in 1998 and 1999 0.05 0 -0.

when inflation was taken into account. . China raised interest rates on bank loans and deposits. • Even after the interest rate hike. real interest rates on loans fell into negative area.Interest Rates • As inflation rose. real interest rates stood at roughly 3%. • So to control inflation.

Contd. .. there will be a • Unregulated financial transactions effectiveness of monetary policy. reduces the • During the period between 1990 and 2004. the bank rate and annual inflation rate moved together. low. • When interest rates are disintermediation effect.

Chart: Inflation rate and Bank rate in China 40 35 30 25 20 Annual Inflation Rate Bank Rate(% per annum) 15 10 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 .

EXCHANGE RATES • The price of one country's currency expressed in another country's currency. . The economy got overheated in 1992 and 1993 due to reforms and liberalization. • • • GDP real growth was at 14%. The exchange rate of yuan is pegged against the US Dollar by the Government of China.

9 billion in 1993. . • In china .3 billion in 1991 to a deficit of $11. • The current account balance shifted from surplus $1. • Inflation increased from 5% to 24% in 1994. 1994 yuan was devalued. • This led to depreciation of yuan.contd.

81 75.00 97.94 87.75 78.68 95.77 119.75 86.64 96.00 104.31 100.00 104.48 .90 69.Effective Exchange Rate of Yuan Years 1990 1991 1992 1993 1994 1995 1996 Real Effective Exchange Rate 98.84 100.59 96.25 Effective Exchange 1997 1998 1999 2000 2001 2002 2003 98.11 99.57 92.76 Nominal Rate 148.27 95.32 102.84 137.51 100.49 103.68 85.90 84.63 89.45 97.

managed floating exchange rate was introduced.EFFECTIVE EXCHANGE RATE OF YUAN • Despite an average annual growth rate of nearly 10% since its reforms. • The continued fall in value of yuan was attributed to the policy by the Chinese government to maintain an artificially low exchange rate to boost exports.2. • Lowering the nominal exchange rate would lead to a rise in inflation. per capita GDP in china is still lower than that of US. • The yuan /dollar rate of 1.68 in 1978 dropped to around 8. . • China was under heavy international pressure to discard its currency’s de facto peg to US dollar. • On July 21st 2005 .