Controllability means that changes in the RMB exchange rate can be controlled through macro-management. The reform should be propelled, but not be uncontrolled. Fluctuations in the financial market and economy should be avoided. Gradualness means to push the reform step by step, taking both present demand and long-term development into consideration. All in all, China will continue to improve the formation mechanism of the RMB exchange rate, and further complete an exchange rate system gearing to the market with more flexibility.
Economically, enhanced means of communication and transportation allows more expedient supply and demand scheduling. Two of the latest Chinese reform measures to aid in the development of the country are the Provisional Regulations on Direction Guide to Foreign Investment and the Catalogue Guiding Foreign investment in China. Both these policies place specific industries including telecommunications, machinery, and electronics on top priority. Funding for these projects come from foreign investments and appropriations from the Chinese government in the form of grant financing, and legislative or administrative support. Yet another example of the Chinese emphasis on industrial b... ... middle of paper ... ...pressive economic figures are through a thorough renovation of Chinese trade policies.
As well as this, China has had historically low levels of unemployment, thus, a trend of increasing unemployment levels indicates a worsening situation. We can see the extent to which the impacts of globalisation have had on China, through historical unemployment statistics. In 2009, unemployment reached a 30 year high of 5.4% reflecting the impacts of the Global Financial Crisis and highlighting that China is now increasingly exposed to external shocks. The movement away from labour intensive industries (i.e. manufacturing and agriculture) and the effort towards service based industries, due to the process of
Realistic approach to the relative gains also diminishes in this case where China continuously worked for its absolute gains…. “China continued to put foreign policy second—this time for the sake of economic development” (The Economist, 2010).
Tools that Control Money Supply The Federal Reserve use several tools like discount rate, federal funds rate, required reserve ratio and open market operations to control the money supply. In the simulation, the effect of controlling the money supply on the economy was presented. Typically, releasing money into the system results in higher Real GDP and lower unemployment. On the other hand, it also raises inflation. Inflation and Real GDP work cross-purposes.
Economic growth, money growth, and inflation are highly related. In the graph displayed above we can see China’s figures over the years 2003-2012. Inflation increases with money growth. In years of financial distress, e.g. during the last financial crisis (here: economic growth numbers hit the decline stage in 2007), especially to be noticed in the year 2009 in the displayed graph, people feel more reluctant to invest their money and tend to hold on to their limited financial assets.
As such, the aggregate demand increases. As mentioned in the article “the producer price index (PPI) - a measure of costs for goods at the factory gate and a leading indicator of the trend for CPI - declined for the 38th consecutive month in April”. This meant that deflation
But still, its GDP per person is low so it is likely to be developed and continues to grow. So China is the main power of global economy. But recently, professionals, as well as the global economy investors are also finally starting to know the fact. Which is China's high-growth era of gorgeous now it is a thing of the past. Thus, precarious situation of the Chinese economy in the world is still having a significant impact.
Therefore, the demand for Chinas exports are high, whereas t... ... middle of paper ... ...to the depreciation of the Yuan, Chinas export industries now become more competitive, thus their export revenue will increase and in turn the demand for domestic labor increases, leading to less unemployment and an improvement on the economic performance. As it says in the article “end intervention…widen trading band…”, China strives for a “more freely floating” exchange rate system. This would improve China’s economy in terms of its financial account deficit, as a result of its current account surplus (trade surplus) and thus its low foreign direct investment inflows, causing economic growth to slow down. Under a freely floating system, the trade surplus and thus the appreciation pressure, “auto-corrects” itself. Hence, as there is a trade surplus, the Yuan appreciates and as a result, its export competitiveness decreases and eventually, the surplus will reduce.
These assets will lose value in proportion with the revaluation of the Yuan. This is only the beginning of China’s revaluation. China will be repeatedly pressured to institute a larger revaluation. The managed float allowed them to gradually adjust the value of the Yuan without major sudden changes to their economy. Central banks worldwide are going to be eager to take the Yuan as a reserve currency because it is guaranteed to go up in relative value.