China Post Inflation

China, is one of the world`s oldest civilizations. It once possessed one of the best economies of the world; however, due to dynasty rule, it could not be a part of the industrial revolution and thus began to decline.

In the modern era, China’s influence on the world economy was minimal. Economic re-forms initiated after 1978 began to generate significant and steady growth in investment, consumption and the standards of living of China.

Today People’s Republic of China is noted to be the world’s second largest economy after the United States and the world’s fastest-growing major economy, with an average growth rate of 10% for the past 30 years. It is also the largest exporter and second largest importer of goods in the world. Being a part of G-20, it represents itself as one of the most industrialized economies of the world.

The country’s per capita GDP was $6,565 in 2009. Market liberalization is said to be the major factor which helped the economy of China to pros-per by leaps and bounds. China now participates extensively in the world market, and private sec-tor companies play a major role in the economy. Since 1978 hundreds of millions have been lifted out of poverty, the rate fell from 53% in 1981 to 2.5% in 2005. China’s foreign trade has grown faster than its GDP for the past 25 years. China’s growth comes from both, huge state investment in infrastructure and heavy industry and also from private sector expansion in light industry instead of just exports, whose role in the economy appears to have been significantly overestimated.

Inflation in countries like china

A developed nation like China too suffered the economic shock of going through inflation. The rise of inflation in China by 4 percent spooked the global equity and commodities market. Some analysts blame the natural disasters for this. Although, inflation is believed to be a monetary phenomenon, economists are of view of few reasons which has lead to Chinese inflation. It is said to be eroding purchasing power and encouraging its populace to shift savings into assets, like stocks.

China`s loose monetary policy is said to be the major drawback aiding to inflation, with combination of negative interest rates and massive credit rise. Excess liquidity, rising cost of labour and price of commodities add to higher inflation equation. The credit boom since the last few years has lead to expansion of industrial capacity. It means china will further increase interest rates and cut down on lending.

Various economists have come up with ways to deal with inflation problem in China. Appreciation of the Chinese currency is one of them. It suggests that real effective rise of Yuan would contribute in making imports in china cheaper and help bring down inflation. However, this measure does not hold good for easily traded goods.

Various government measures have helped China`s economy to overcome this problem. Like the government has trimmed credit growth and discourages multiple home purchases to cool down the surging property prices.

Still, China is on its way to overtake United States by 2020 and establish itself as the world`s largest economy. Various citations support the same. Four of the world`s top ten companies are Chinese, which includes PetroChina Co., Industrial & Commercial Bank Ltd., China Moblie Ltd. and China Construction Bank Corp.

According to the World Bank, Chinese economy expanded by 9.4 percent in the third quarter of 2010 which is 4,905 billion dollars or 7.62% of the world`s economy. Statisticians are of the opinion that China`s future influence on the global economy will increase and country`s double digit expansion will contribute a third to the global growth this year.

Guest Article by – Priyanka Pathak – Club Ecobizz

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