Assignment CHINA ANALYSIS A. 1Main policy objective 6/10; the Chinese government has increased its spending on primary resources that spur economic growth in areas such as consumption, reduce unemployment and increase its investments. Firms can then produce more since the market is assured. Improved productivity leads to economic growth. The tax system of the country currently is at 25% of the profit firms make while the VAT is at 17%. This tax amount is quite high and will discourage investors hence the country risk losing investment opportunities. The rule of law provides for the social system that is not suitable for a developing economy.
Investment is discouraged as they as the legal system does not protect them and reducing economic growth. They have enforced a must go education for all the population. Education creates the foundation for knowledge hence the country is assured of quality labor that increases productivity. A.2trade policy 5/10, they are the second importer and largest exporter of goods in the world. But since they export more than imports, they have a positive balance of trade that makes them sell more making the economy grow.
Foreign investments do not conform to world standards since only 47% can compete. This makes the country lose foreign investments and risks losing its world superpower to other nations. The country have too much control of foreign investments. The country hence loses investors since there is less confidence in the country reducing their growth capability. The nation boasts of excellent corruption watchdog that assures the public and the entire world of free and fair trade. This ensures free trade activities in the country that motivates investors leading to economic growth in the country. A.3Economic growth 9/10; the country has averaged 1.95% in a year making the country be the fastest growing economy.
More investors are hence attracted to the country leading to high production that ensures economic growth. The infrastructure is also a top priority for the government. Furthermore, the country saving rate is at 35% while investments are at 47.3%. The country hence has more revenue to invest and expands the economy ensuring growth. B.1Macroeconomic risk 6/10, China has been in budget deficits that drains much of the country GDP.
Hence, more income is spending on to pay debts or loans denying the state the investment fund making the country risk its economic growth. The country has developed sound financial systems to manage the debts and sustainable fiscal policies enabling them to reduce their deficits that encourage economic growth. On the other hand, the yield curve has been on the rise while the interest rates are relatively low. The improving trends encourages investors given they can also acquire loans at low-interest rates. The countries hence attract more growth into the country since more investors can access capital B. 2The banking system and financial development 4/10; the country performance in financial markets is relatively small given her competitors in the market.
This makes the country stock market to perform poorly at world stage reducing its world revenue opportunities. The regulation by the government though is minimized, and the state also ranks as the best country that does not waste resources. Hence, investors are thus confident as they would perform their operations with minimum interference and make good use of their resources leading to economic growth in the country.
The housing sector has also become an immense increase given an average growth of 13% annually. Hence, investors are attracted to these areas as they are assured of the market making the economy be more productive. The country though is not much into globalization and in most in cases tends to restrict the movement of the banking systems around the world. The institutions are thus denied investments since movement is reduced. B.3Growth and predictability of monetary policy 1/10; The inflation rate in the country is high and stands at 5.83%.
The figure is so high that the country will chase away investors. On the other hand, wages are high in the general economy. Even though production is high, the state risks losing new investors who would establish to improve the productivity. Though unemployment is relatively small but the element of it still exists at 4.3%. This reduces the spending power of the economy and would affect the production in the economy. Finally, the central bank of China is not independent which comprises its ability to control action such as inflation.
Hence, the fluctuations will exist that provides an unfavorable environment for business operations making the country lose potential growth partners. B.4The exchange rate system 9/10The Chinese currency is regulated by the government and the central bank authorities. It is relatively stable that provides for confidence in the trade. They have also loosened the capital controls, and the initiative has attracted more foreign exchange that ensures economic growth in the country. The problem with the currency system is only there is undervaluation, the measure does encourage growth but only make the economy losing its trade to her competitors.