The document compares key economic indicators of China and the United States, including:
- A healthy GDP growth rate is 7.5% for China and 3% for the US.
- Healthy unemployment rates are 4% for China and 5% for the US.
- Healthy inflation rates are ≤2% for China and ≤3% for the US.
The document also analyzes China's foreign trade relationships and investments.
2. Introduction
China:
Capital - Beijing
Language - Mandarin, Cantonese
Government System - Communism
Economic System - Socialistic/ Free Market
United States:
Capital - Washington D.C.
Language - English
Government System - Democratic Republic
Economic System - Free Market
3. Timeline
Imperial China Republic of China
221 BC
Peoples Republic of China
1911 1949 Now
Notable Dates
1971 Accepted into the United Nations
1978 Economic Reforms Started
2001 Became apart of the World Trade Organization
2010 China has 2nd
largest Economy
2012 The economic growth of china began to decrease
4. Fiscal Policy
Set by government of China primarily parliament
“Proactive” fiscal policy is officially what the
government is supporting
This can be translated as a moderate expansionary policy
that creates demand and stimulates the economy primarily
by expanding domestic demand
Source: China Daily
5. Monetary Policy
Set by People’s Bank of China
“Prudent” monetary policy
The goal of a “prudent” monetary policy is to maintain
price stability, as it usually means a relatively
expansionary monetary policy when the economy turns
sluggish or a relatively tight monetary policy when the
economy shows signs of expanding too quickly
Source: China Daily
6. “Healthy” GDP Growth Rate
When considering where the healthiest growth rate occurs,
multiple points of intersection involving the highest economic
growth rate while still maintaining acceptable price stability
and a natural rate of unemployment are the essential elements.
These are important elements of the growth rate:
real GDP growth rate
GDP PPP($) growth rate
real per capita GDP
per capita GDP PPP($)
7. Healthy Growth Rate
3%
GDP (PPP)
$16.72 trillion
GDP per Capita (PPP)
$52,800
United States
Healthy Growth Rate
7.5 %
GDP (PPP)
$13.37 trillion
GDP per Capita (PPP)
$9,800
China
8. A “Healthy” 7.5%
In comparing the historical inflationary percent changes with the GDP
growth rate changes, we see that the acceptable price stability occurs
around the GDP growth rates of 7-9%
The next piece that we must look at is the per capita GDP PPP ($). By
calculating the percent change from year to year, we have determined that
growth of 9.3% occurred in per capita GDP PPP ($) from 2012 to 2013.
This is a good example of the per capita GDP PPP ($) increasing at a high
rate while having acceptable unemployment
In these years, if the real GDP growth rate was closer to 7.5%,
unemployment at around 4% and inflation was relatively stable, the
economy of China would have been healthiest
10. Agriculture: 9.7%
Industry: 45.3%
Services: 45%
Agriculture: 1.1%
Industry: 19.5%
Services: 79.4%
GDP by Sector
United States China
11. Population
Labor Force
Labor Force Participation
Rate
Total Unemployed
Unemployment Rate
“Healthy” unemployment rate for
China is 4%
“Healthy” unemployment rate for
United States is 5%
Factors that must be considered in determining
the healthy unemployment rate are:
13. According to the official statistics regarding China, when the
unemployment rate was below 4% there was rapid GDP growth with
increased CPI volatility that hurt overall economic health in the
country. The rate that would best serve China’s economic health is
around 4%, officially
Again, this is the official statistical conclusion. This can be
extrapolated from the graph measuring from the years 2000-2010
during which time there has been minimal change in the
unemployment rate
In spite of large changes in other key areas which indicate economic
performance such as GDP growth rate, GDP per capita, CPI, etc.,
the unemployment rate has remained nearly constant over the last
decade. This is cited as an unreliable statistic
Unemployment
15. The direct method of data collection, corruption by the National
Bureau of Statistics, and the use of the registered unemployment rate
(RUR), as opposed to the unemployment rate (UR) are all highly
criticized elements of China’s unemployment statistics
China also has a massive migrant worker population estimated at
around 260 million. The inclusion of these workers in the normal
employment statistics can create inaccuracies when comparing it with
other countries’ numbers
Possible Issues with
Unemployment Statistics
Sources:
Bureau of Labor Statistics
China Economic and Security
Review Commission Staff
Research Project
Demystify the labor statistics in China
Fang Cai, Yang Du, Meiyan Wang
China Economic Journal
Vol. 6, Iss. 2-3, 2013
16. Problems with Aging Chinese
Population and Labor Force
Shrinking number of people entering into labor force
Growing number of the aging in the labor force
In 2010, there were 110 million people 65 and above in China; by
2030, the number will be more than 250 million. By 2050, 25% of
the population will be over 65
The One Child Policy which came about in 1979 is largely
responsible for these problems with the labor force
Rural area working environments are also improving causing large
numbers of potential migrant workers to stay nearby for work, thus
dwindling the urban labor force even further
Source: CNBC: China's Aging Population Threatens Its Manufacturing Might
17. “Healthy” Inflation Rate
A “healthy” inflation rate can be determined by analyzing a number of
factors including:
Consumer Price Index
Producer Price Index
Money Supply
Inflation Rate
These factors should be used to arrive at an inflation rate that is stable yet
allows for maximum economic growth.
“Healthy” inflation rate for China is ≤ 2%
“Healthy” inflation rate for the United States is ≤3%
18. Inflation
Government of China can manipulate the rate of inflation by
setting monetary policies
Due to the added volatility resulting from the financial crisis in
the late 2000’s, the Chinese government has looked to focus
largely on stabilizing the rate of inflation through its monetary
policies
19. This chart demonstrates the slowing rate of inflationary growth in
China by measuring the percent change in the CPI.
From this, and by analyzing the historical trends in GDP growth rate,
we can conclude that the healthy rate of inflation is around 2%. At
this rate, arbitrary redistributions of incomes and wealth will be
minimized while growth and consumption will continue to expand
Sources: CIA World Fact Book,
Index Mundi
21. One of the primary goals of both the monetary and fiscal policies in China
is to produce a shift away from an investment led GDP towards one driven
by consumption. This is referred to as “re-balancing”.
Currently, investment spending accounts for more than 50% of economic
output
These investments come largely from the state. Again, the goal is to
increase domestic consumption primarily through bolstering and enhancing
the service sector.
The policy makers are accomplishing this by incrementally making credit
more expensive through raising interest rates, which the government has
the power to do in China
In the United States, the market sets the interest rates, so this level of direct
control is not feasible here
Changes in Spending
22. Implications of current artificially set
interest rates
Because of China’s
central ability to set
interest rates, low rates on
both savings and loans
can simultaneously exist.
As a consequence, nearly
39% of GDP is spent by
businesses paying interest
on loans. Inevitably,
businesses will seize
making a profit if this
policy continues for too
long.
24. Exchange Rate
International Trade
Current Account Balance
Exports
Imports
External Debt
Foreign Direct Investment Flows
Determining factors when considering flows of foreign trade
and investments for both the United Sates and the People’s Republic
of China
25. China has the world largest surplus
The United States has the largest deficit
27. Export Trade Partners
United States
Canada 18.9%
Mexico 14%
China 7.2%
Japan 4.5%
China
Hong Kong 17.4%
United States 16.7%
Japan 6.8%,
South Korea 4.1%
These figures represent a
percentage of total exports
for the country
28. Export Goods
China
Electrical and other machinery
Data processing equipment
Apparel
Radio telephone handsets
Textiles
Integrated circuits
United States
agricultural products
(soybeans, fruit, corn)
industrial supplies
(organic chemicals)
capital goods
(transistors, aircraft, motor vehicle
parts, computers,
telecommunications equipment)
consumer goods
(automobiles, medicines)
30. Currency Manipulation
•A major concern with China is that its currency
is intentionally kept low by the government
through the stock piling of foreign reserves, so
that Chinese exports can have an advantage over
countries exports.
31. Import Trade Partners
United States
China 19%,
Canada 14.1%,
Mexico 12%,
Japan 6.4%,
Germany 4.7%
China
South Korea 9.4%
Japan 8.3%,
Taiwan 8%,
United States 7.8%,
Australia 5%,
Germany 4.8%These figures represent a
percentage of total imports for
the country
32. Import Goods
China
electrical and other machinery,
oil and mineral fuels
machinery components
optical and medical equipment
metal ores
motor vehicles
soybeans
United States
agricultural products
industrial supplies
crude oil
capital goods
(computers, telecommunications
equipment, motor vehicle parts,
office machines, electric power
machinery)
consumer goods
(automobiles, clothing, medicines,
furniture, toys)
37. Analysis of Foreign Trade and
Investments
China
Establish greater rapport and respect for other countries laws
and policies especially concerning intellectual property and
internal financial regulations to bolster currency’s international
standing
Shift GDP to greater domestic consumption and greater foreign
domestic investment outflows
United States
Reduce external debt, increase financial regulations, reduce
trade deficits via expansion of exports of energy products such as
LNG
38. • “Healthy” GDP growth rate
“Healthy” GDP growth rate for China is 7.5%
“Healthy” GDP growth rate in the United States is 3%
• “Healthy” unemployment rate
“Healthy” unemployment rate for China is 4%
“Healthy” unemployment rate for United States is 5%
• “Healthy” inflation rate
“Healthy” inflation rate for China is ≤ 2%
“Healthy” inflation rate for the United States is ≤3%
In conclusion
