Economic growth is a change in the level of real national output in an economy in a period of time. Recently, China experienced real annual GDP growth of 9.5% through 2018.
From the 1970s, China has been having export-led growth. This means that their value of exports exceeds their value of imports, which is a key contributor to a ‘huge trade surplus’. They have been able to do so largely due to their ‘undervalued exchange rate’ and ‘cheap labour ’. When this is the case, foreign consumers would find Chinese goods relatively cheaper, and Chinese consumers find foreign goods relatively more expensive, having the above effect. Historically, China would have a trade surplus in goods, such as energy and natural resources, as they would first specialize in the primary sector of manufacturing, causing net exports to increase. As net exports is a component of aggregate demand, this signifies short run economic growth (since increased aggregate demand can enable increased real GDP, i.e. output), ultimately due to net exports.
Eventually, after 2000, China saw the yuan strengthening as well as ‘sharply rising wages’. This could be because after having free market reforms such as trade liberalisation, foreign firms would have chosen to locate in China to take advantage of its relaxed regulation and cheap labour available in a rapidly growing population. As a result, they would demand more yuan to do business in China, so the value of the yuan in the money market increases due to the rationing function of price (price of money as a scarce resource increases to ration out the excess demand). MNCs locating can also enable economic growth as employment in China would rise and workers employed under MNCs become more skilled, marking them likely to produce more outputs.
China’s economic growth, however, may not be sustainable. There could be an inequitable distribution of income and wealth in China, where only a small number of rich elites or even the government (in a centralized economy) own a majority of assets as well as businesses. They would be able to exploit low and middle-income groups with low wages and not passing these savings to the household sector. It would mean that while economic growth achieved in terms of statistics, quality of life is not improving, in which case it is unsustainable. Moreover, another issue is that China’s economic growth may also be environmentally damaging. For example, coal factories/ those producing energy generate negative externalities such as pollution, which can be harmful to the population’s health, which is a third party impact unaccounted for in the market price. Couples with the demographic bulge of increased elderly people, it can mean quality of labour would be lower and in the long-term, this significantly reduces economic growth.
On balance, whether or not China’s economic growth in the future will be sustainable depends upon whether its externalities and negative effects are accounted. Given that ‘China is making enormous investments in education, physical capital investment and research and development’ along with the fact that the one-child rile is abolished, this would mean the quality and quantity of labour and capital improves. It would cause full productive capacity of China to increase, causing the potential/ trend output level to rise and the price level to fall. This means long-run economic growth. R and D investment would mean China can find more sustainable ways for the production of goods given many countries have pledged to have zero net carbon emission by 2020. Workers that are more educated would also demand higher wages make better decision, so inequality would also fall, hence China’s economic growth can be sustainable in future.
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