CHINA Background: For centuries, China was a leading civilization that outpaced a lot of other countries in the arts

and sciences. However, whilst the industrial revolution took place in the West, China s communist ideals, in addition to major famines, foreign occupation and other political problems, inhibited them from moving forward. Under the leadership of Deng Xiaoping in 1978, China has refocused to a more centrally-planned, market-oriented economy, in order to boost economic development. However, as China is still acting as a communist state, the Chinese government still imposes strict economic policies on what can or cannot be produced, and to whom that can be sold to (or who China can do business with). China is also the highest populated country in the world. While this does give China a high availability of labor, the obvious downside of this is the difficulty in trying to control and manage such a large economy. Historically, China was a key producer for silk, silver and high quality textiles. They were heavily involved in trade with countries like India and Britain. Today, China s economy is still largely in the primary and secondary sector. It is the world leading producer for many products in both the agriculture and manufacturing industries, such as rice, corn, wheat, iron, steel, coal, textiles, and consumer products. It s largest trader is United States, exporting around $220 billion USD in 2009 (CIA.com). Furthermore, with such a high population, unskilled labor especially in densely populated areas of China is particularly cheap. As a result, this is a catalyst for high foreign demand for China s exports and increased trade with international markets. Economically speaking China can be largely, and distinctly divided into its rural parts (Western regions of China) and the urban parts (Eastern coast regions of China). There s a huge disparity between the two, most notably, while you don t make a lot of money living in rural China, competition and unemployment is much lower. Moreover, there is a growing amount of rural-urban migrants, and not much of urban-rural migrants (CIA.com). This is key to understanding China s governmental difficulties because their economy is so diverse. Goals for Growth: China s GDP is currently at around an impressive 10%, but what s more important is that China, for the past two decades, has seen the highest sustained GDP growth in the world. As a result, China has lifted almost 200 million people out of poverty in the last 20 years, reducing China s poverty level to 2.8% of the population (DOL.gov). Consequently, China s goal is to continue controlling steady economic growth by providing sustainable employment for the world s largest population. Previously, China has been stimulating the economy by maintaining a high balance of payments surplus (by articially suppressing their currency rate mainly in relation to the USD). This created huge controversy, especially amongst countries that are in the same market, because it doesn t allow for market forces to act against each other naturally. In essence, while this stabilizes China s economy and protects domestic producers, foreign producers in the same market are unhappy because they can t compete with China s artificially low prices. Another effect is that it

creates animosity and friction between other trade nations. In order to move towards a more free market economy, China has begun to loosen regulation on their currency rate this decade, and it has been steadily appreciating eversince. Another goal for economic expansion is for China to steer away from an export-heavy economy and create sustainable domestic demand (DOL.gov). China chiefly relies on export demand, and this proved to be a risky practice as China s exports suffered from the 2008 financial crisis. In recent years China has allowed for more and more privatization, again indicating that they want to move away from a centralized economy. From 1999 to 2003, the number of State-owned enterprises in China dropped from 114,000 to 34,000 with about half of the decline due to privatization (Meyer). Current trajectory and economic landscape: The economic state was greatly affected by the 2008 financial crisis, in particular it hit economic growth and employment hard. Real GDP growth dropped from a high of 13% in 2007 to below 6% in 2009. A key factor of this drop was that China s economic growth is, and always has been, heavily dependent on export demand. Along with the financial crisis, China s export demand was directly affected. The severest contractions came in early 2009, with export growth falling by 25% in February compared to January of 2008. However China was still experiencing a balance of payments surplus (CIA.com). The financial crisis also impacted domestic production and manufacturing growth. Overall Chinese exports slumped from $1.4 trillion USD in 2008 to $1.2 trillion USD in 2009, a contraction of some 15%. Moreover, the effects of the crisis were reflected in unemployment, with a sharp drop in jobs created in the last quarter of 2008 and the first quarter of 2009: In the first half of 2008 an average of 1.07 million jobs were created each month. This number fell to a trough of 380,000 jobs created in December of 2008 (DOL.gov). At the moment China s first priority is to combat the effects of the financial crisis. China is generating employment by expanding domestic demand. This was designed to counter the increasing perception of over-reliance on exports, leading to a policy need for more balanced growth relying on both domestic demand and export demand. China has already implemented a stimulus package to fund key projects in low income housing, infrastructure development such as railways, highways and airports, the development of medical and health services, and promotion of culture and education. The package also includes a monetary policy of lowering the benchmark interest rate by five times and the required reserve rate succesively five times, which will in turn increase investments and economic activity. Another part of the stimulus involves a new rural pension system that aims to balance the rural and urban population density (DOL.gov). It provides greater support and preferential treatment for rural areas through more favourable policies on consumer durables such as electronics and automobiles. Finally, the stimulus package included subsidies of $6 billion USD to assist domestic producers and tackle the increasing unemployment rate. Upon implementation, this stimulus package showed responsive and positive outcomes in the economy: GRP growth increased from 6.1% to 10.7% at the end of 2009, giving a notable boost to economic recovery.

In the World Economy: Being the world s largest exporter, China plays a key role in the world economy. Many countries, the United States in particular, have strong ties with China. Whether it s through trade, alliances and treaties, or adoption of similar policies, China has established good relationships with all members of the G-20 (Xin Hua). Current Chinese President Hu Jintao also expressed that G20 members should strengthen cooperation to promote the notable, sustainable, and balanced growth of the world economy (Xin Hua). A lingering question that has come up in the G-20 is China s stance in contributing to the stabilization of the world finance system. While China s powerful and striving economy can be an influential force to unite the world s finance system, it does conflict with China s own interests to remain the biggest engine for economic growth (Wang). A large part of this solution would entail allowing the currency rate to adjust freely, creating a better balance of payments for other countries, however affecting China s exports, and risking the stability of their own economy. In the recent G-20 in Cannes, it was established that, in the eyes of their leaders, China was not ready to take on such a key role in the G-20, due to its limited knowledge and experience in the international economy and status as a developing nation. China is undoubtedly a fast-growing economy, but it was determined that China is still facing internal problems and social imbalance (Wang). As a result China is still taking a backseat role in the G-20, but showed support for Europes long-term goals for stabilizing the economy. Nonetheless, the Chinese government is now focusing on shifting their export-reliant economy to one that s more dependent on domestic demand.