The Economic Miracle Of China
Before we dwell on the current situation in china, we must understand what made chia the economic superpower it has become to day.
Reasons for rapid growth of china
1. China has grown the old fashioned way, by building …show more content…
Reasons for Chinese devaluation
The currency is one of the only determinant of the exports of the country . With the devaluation of the currency is a desperate attempt to make the exports competitive in the world market.
For 30 years china has been growing its exports on the back of low wages and a large working age population which it transports from villages to the cities on favourable terms. However , with consequences of the one child policy of 1979 taking stage the proportion of the working population : dependent population going down , china can no longer have the advantages that it did for 30 years . This is reflected in the fact that the exports of china are down 8.3% on a year on year basis .
China strategy of pegging its exchange rate with the dollar may be turning out to be counterproductive in the recent past with the appreciation of the dollar in.
Other competitive currencies have depreciated against the dollar while the yuan has appreciated. With the dollar expected only to get stronger in the near future, the devaluation of the yuan is imperative to keep the currency …show more content…
With declining sales, plummeting fixed asset investment and consumer sentiment the situation is perhaps at its worst in 30 years. China is notorious for ironing out the ruffles in its growth figures and the world has reason to believe this time too!
The following graphs underline the consumer sentiment and fixed asset investment in china over the years.
Consumer sentiment is the measure of the overall health of the economy since the it captures what the consumers feel about the financial state of there as a whole. The possible reasons for falling consumer sentiment could be declining expectations about future income , quality of life, stock markets etc
Declining fixed asset investment is reflective of the fact that both the government and the private players are not investing in tangibles such as plant&machinery that are vital for the economic growth of the economy . Private players may not have the confidence to go ahead with big ticket projects that require large investment in fixed asset . It can also be reflective of the unavailability of loans at favourable rates of interest which doesnt allow companies to raise enough money to undertake the large