Growth Miracle in China - Assignment Example

Growth miracle in China Name: Institution: Date: Question 1: Growth Miracle in China Using Solow’s Model Reasons for Growth Solow growth model has been used to explain many intricacies behind the economic growth in that it is concerned with the accumulation in a pure production economy whose components are labor (L), capital(C), and knowhow (A). The Solow's growth model argues that the economic growth is a resultant factor of the enumerated three factors. In this regard, the model explains economic growth and potential for growth in economies based on their ability to acquire the three factors and consequently used them to enhance increased economic productivity. Consequently, China’s growth model can be evaluated based on this model. In this regard, its historical growth, current status and growth potential based on the model. Mainly the Chinese growth miracle is hedged on its high population (Bodvarsson & Van, 2013). According to the International Monetary Fund (IMF), China is one of the most populated countries in the world having a population of over 1.4 Billion people. China is endowed with numerous natural resources relied upon as raw materials in the global market. One among them is the textile industry raw materials on cotton. Moreover, China is in possession of various metallic and non-metallic resources that enabled the country to earn extra income from the exports made (Truman, 2006). This had a further effect to the income rate of the workers implying that the miners and other working individuals got a wage increase, hence attracting other individuals to work. This resulted into many people getting into the industrious in order to earn. Historically, there was a change in the prices of goods and services. As a result of this change, the majority of the population sought ways to earn extra income to sustain their level of living standard and, as a result, the market became flooded with more employees. On the other hand, the Chinese economic growth was as a result of increased capital supply. In this case, the model identifies capital as both the tangibles and intangible factors of production in the economy. China as a country had developed machineries that were invented by her citizens to enable the efficiency and the effectiveness to be achieved in the country’s economy. Further, the Chinese economy ensures the availability of investment capital for households through increased support of the social services. For instance, the government supports the health care industry. Consequently, this reduces general public expenditure allowing for increased savings and investment. As Soliman and Gutiérrez, in collaboration with the United Nations (2006) argued, there is increased relationship between an economy’s savings and its eventual investment amounts. Additionally, China has a formal education system that started long and is still in place. This acts as a bridge to facilitating the transfer of knowledge from one generation to another. As a result, the masses in the country are well versed with the traditions as well as the norms of their people, which act as a motivator to discoveries. To this effect the Chinese government increased its support to the education sector. In this regard, the industry is funded and guarded through stringent policies that enhance increased literacy levels. Moreover, through the adoption of a technology flexible culture, the Chinese economy has over the years managed to achieve increased production efficiency, significantly reducing on per unit cost of production (Hansen, 1999). Future Expectations The China exceptional growth is not expected to continue in the future since the current government has put into place regulations that limit situations that would see the population even escalate further. For instance, the government has introduced a policy that allows only a single child per couple and to implement this, those couples that do not adhere to the rule are taxed heavily up to their half of their job income. This will evidence a great reduction in the population size since the rate of birth is directly proportional to the population of the country. Immigration to other areas has also been encouraged by the government of China in order to minimize the number of population in the country. In recent years, China has managed to send most of her masses out of the country. This has been implemented through sending qualified specialists to countries that require such services. Consequently, this as Gupta and Wang (2009) argues encourages increased knowledge transfer while reducing labor supply surplus in the Chinese markets. Restrained and late marriages are also encouraged in China. This way, the period in which the couple has to have children is minimized and, as a result they will end up having few children as compared to when a couple gets married at an early age giving a long span of children bearing. According to Cheng and Brosseau (1993) early marriages as experienced in China where over 49% of the women were married by the age of 23 years, increased the likelihood of getting a larger number of children.. Therefore, the Chinese government has embraced this technique in educating the population on the same. More so, it has taken time to encourage the young to continue with their education thus taking some of the time that would otherwise be used in marriage. Situation Replication The situation in China can be easily replicated in other countries especially the underdeveloped countries. This is easily possible when the literacy level of such a country is low and that the population within such a country is ignorant of the education in place. Consequently, Noman (2011) in the evaluation on ways to improve Africa’s economic development, established that, the adoption of free and fair societies would enhance equal resources distribution. Consequently, the author notes that such an approach would enhance increased economic growth. Additionally, the evaluation noted that the concept of shared growth would also enhance increased productivity and economic growth even in the developed nations. This is an approach through which, the nations, integrate the respective economic models, with the social structures to ensure equity and equality in such development. Question 2: Reserve Bank Board Meeting Minutes In the meeting at Sydney, the SRB bank minutes taken on the march 2014 will have effects on the processes and the moves that the stock market and the bond market will take. This is because the perception of the bank on the economy is very crucial in the decisions of the buyers and the sellers in such markets. For instance, the board notes that there was growth in China, just above what the China government had expected. Moreover, there was a decrease in the Chinese steel and iron ore prices and was expected to continue decreasing with time as the global capacity expanded. This means that the stock brokers in these regions will shift to other better earning stocks places and in the long run, the stocks from these markets will lose or decrease in their value. Hunter, Kaufman and Pomerleano (2005) suggests that the above scenario is a result of the stock market fact that stocks value increase with the increase of the other fundamentals increase in value and if such items drop in their value, then the stocks will not stand the decrease and will subsequently lose their value. Further, the board observed that there was a tremendous improvement in the business in parts of japan. There was a likelihood of businesses doing much better in these areas, and this was further indicated by an increase in the consumption tax from japan. There was a similar case in India where despite persistent high inflation rates, the market registered significant improvements. This indicates that the stock market in japan and India are likely to improve, thus attracting more stocks brokers as well as the investors (Sutcliffe, 2006).The improvement in japan was despite the high rate of inflation experiences and the fact that the major economies were still stable and in good condition. The monetary agenda was tackled and, as a result there was an indication that there was a general growth in the Australian economy and that this would also continue in the near future. Therefore, the stock market and the bond market in Australia would shoot up owing to the fact that prices will always increase where the stocks of particular companies increases. As a result, the investors will be required to provide more funds to buy such shares. This is in spite of low labor that was experienced due to low productivity. The expansionary policy that the government had earlier put in place was seen to work and that the same was to be kept in the system in order to avail much more funds to the investors. This technique is normally used by the government to create a balance between the money available in the economy and the money that is required for investment. This will have an impact to the markets in that the prices are going to be lower since there will be much money circulating in the economy allowing the investors to make investment of their choice and access the funds as well as the returns from their investment much easier. In addition, the board noted that in the recent past, in about three months, the rates at the stocks exchange had fallen. According to the board, this was a good indicator that there is likely to be a balanced growth in the economy. As a result the markets will be affected in that they will continue to lower their prices of the stocks in order to compete for the market. When the rate of exchange falls then the country is in a position to exchange its goods with other countries easily and thus facilitating interactions between those two countries. The board opted to not change the rates and let the economy stay as it is until further action is needed on the same. The board’s decision was in no way a surprise to the marketers since they already know the situation on the ground even before the bank makes its investigations. Currently, it is easier to predict the decisions to be made by the monetary bodies since all the information needed to make such decisions is readily available to the concerned parties. This can be supported by the fact that the board’s meeting minutes indicate that there was an expansionary policy already in place and since the marketers had already familiarized themselves with the situation it was no surprise to see that the board opted to sustain the technique for some further time. Some of these markets are big enough to conduct their own survey and come up with factual data that is even more explicit than the data collected by the banks. It can be assumed that some of them had already conducted a research on the market and the factors that are likely to affect the decision of the board and had in advance predicted the results hence hearing or reading about the decision of the board made no difference since it was as they had expected. It is only in very rare cases that such decisions will come as a surprise to the marketers in these markets. Such cases would occur when the marketing firms have not done adequate research to determine the actual objective of the government or the board on controlling the economy for future purposes. Secondly, as Kolb (2011) states, this can occur when there is the lack of enough information in the market to enable the firm does a thorough investigation, hence resulting to firms making undesirable decisions contrary to what the board may find and decide. In conclusion, the board’s decision will affect the stocks market and the bonds market in their decision if the outcome is not expected by the marketers. It will affect them for a short period, but the marketers will adapt to the change and with time be used to the system even though there will be losses to be incurred as a result of lowering of the prices below what was expected by the investors hence transferring the burden to the stock holder. References Bodvarsson, O. B., & Van, . B. H. (2013). The economics of immigration: Theory and policy. New York, NY: Springer. Cheng, Y. J., & Brosseau, M. (1993). China review 1993. Hong Kong: Chinese University Press. Gupta, A. K., & Wang, H. (2009). Getting China and India right: Strategies for leveraging the world's fastest-growing economies for global advantage. San Francisco: Jossey-Bass. Hansen, M. H. (1999). Lessons in being Chinese: Minority education and ethnic identity in Southwest China. Seattle: University. of Washington Press. Hunter, W. C., Kaufman, G. G., & Pomerleano, M. (2005). Asset price bubbles: The implications for monetary, regulatory and international policies. Cambridge, Mass: MIT Kolb, R. W. (2011). Financial contagion: The viral threat to the wealth of nations. Hoboken, N.J: Wiley. Noman, A. (2011). Good growth and governance in Africa: Rethinking development strategies. Oxford: Oxford University Press. Solimano, A., Gutiérrez, M., & United Nations. (2006). Savings, investment and growth in the global age: Analytical and policy issues. Santiago, Chile: Naciones Unidas, CEPAL. Sutcliffe, C. M. S. (2006). Stock index futures. Aldershot [u.a.: Ashgate. Truman, E. M. (2006). Reforming the IMF for the 21st century. Washington, DC: Institute for International Economics. Read More