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CHINA’S MANUFACTURING BOOM AND EUROPEAN CRISIS

SUBMITTED BY: AAKASH SHARMA ANKIT GARG

544 (IMF data 2010).  China is also the largest exporter and second largest importer of goods in the world .  China major exports are: office machines & data processing equipment.  China’s largest exports markets are European Union.  It has been the world‘s fastest-growing major economy. which is even greater than twice the Indian counterpart.93 trillion (2010).20 trillion (1st.7% of its GDP. Japan and South Korea.  It has Foreign Reserves of $3.  Its per capita GDP (PPP) is $7.2011). telecommunications equipment. Hong Kong. electrical machinery and apparel & clothing. .Overview of China’s Economy  China Is the world's second largest economy after the United States with a GDP of $5. with consistent growth rates of around 10% over the past 30 years. while regions in the hinterland are less developed. United States. Exports of goods and services constitute 39.  The provinces in the coastal regions of China tend to be more industrialized.

and importing high technology products into China. China launched several economic reforms in order to Decentralize economic policymaking into open Market in several sectors:  Central government initiated price and ownership incentives for farmers. which enabled them to sell a portion of their crops on the free market.  Various enterprises were generally allowed to operate and compete on free market principles.  Removing trade barriers encouraged greater competition and boosted foreign direct investment (FDI) flows.  Citizens were encouraged to start their own businesses.  The government established four special economic zones along the coast for the purpose of attracting foreign investment.  Trade liberalization was also a major key to China’s economic success. boosting exports.Economic Reforms in China  Beginning in 1979. rather than under the direction and guidance of state planning. .

China’s economy has grown substantially faster than during the pre-reform period.Growth of Economy  Since the introduction of economic reforms. CHINA GDP ANNUAL GROWTH RATE CHINA GDP .

CHINA EXPORTS UNEMPLOYMENT RATE .

lead to achieved high rates of total factor productivity (TFP).Causes of China’s Growth  Economists generally attribute much of China’s rapid economic growth to two main factors:  Large-Scale Capital Investment (financed by large domestic savings and foreign investment) and  Rapid productivity growth. especially in sectors that were formerly heavily controlled by the central government. o The large level of savings has enabled China to boost domestic investment. which boosted output and increased resources for additional investment in the economy. . o Economic reforms led to higher efficiency in the economy. o The improvements to productivity were caused largely by a reallocation of resources to more productive uses. o Its ability to access and utilize existing foreign technology and know-how. and services. These two factors appear to have gone together hand in hand. trade. such as agriculture.

but where the government still plays a major role in the country’s economic development.  One study found that SOE’s constituted 50% of the 500 largest manufacturing companies in China and 61% of the top 500 service sector enterprises.  State owned enterprise(SOE) still dominate a number of sectors and are shielded from competition and are generally the only companies allowed to invest overseas.China’s Incomplete Transition to a Market Economy  China is a “socialist market economy.” a term that appears to indicate that the government accepts and allows the use of free market forces in a number of areas to help grow the economy. .

Major Challenges Facing the Chinese Economy  Uneven economic growth  An inflexible currency policy  Government support of inefficient industries  A distortive banking system  Growing population  Public unrest  The lack of the rule of law  Poor government regulatory environment. .

How Can China help Europe?  China is having one of the largest Foreign Exchange Reserves.  Pressure from public to invest the extra money in improving their livelihood. What are the problems with it?  High risk due to European crisis.  China can ask for political concessions – like being recognized as a full market economy to give Chinese companies greater access to Europe. What benefits can China have?  US and Europe are its two biggest export markets. Will China help Europe? . or an end to the arms embargo that the EU placed on China. so by keeping them afloat it is insuring that its best customers keep on buying.