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This essay will provide reasons or factors that influenced China economic growth in early decades and how these factors have impacted on China economy. The essay will also provide reasons why these factors such as capital accumulation would not be sustainable in future for growth models. This essay shall emphasis factors that will support proposed economic reforms that are due to be implemented after phasing old growth model. China past growth model China is a populated country which relies on several factors to drive its growth in economic sectors. It has a low capital/labour ratio. This means that labour is very abundant in the country making business ventures relatively cheap to invest in the country. For example, China joined WTO in 2002 which stimulated investment activities in anticipation of market opportunities (Hoffmann and Enright, 2008). These kinds of investment growth from 1990s have been supported by several factors. These factors are social incentives which made the model known as managed capitalism (Hoffmann and Enright, 2008). Key inputs such as water, electricity, land were very cheap since they were subsidized. Financing for establishing factories were channeled to State Owned Enterprises at zero cost. This attracted many investors since there were huge domestic savings to lead many to investors. However, this model presented several challenges such as build up of excess capital for production leading to deflation. There was also a sharp focus towards export market which leads to fluctuation in currency and thus, the Yuan was appreciating against the dollar. Finally, it resulted to high trade surplus especially with the US leading to growth of credit and money supply. In summary, China growth model has been supp... ... middle of paper ... ...p labour will decreases due to increase in wages as well level of consumption. However, there is need for more sustainable economic reforms. In lower growth environment, there are several issues that occur. Private firm will have lower profit margins due to high costs of capital and labour. Efficient allocation of capital will occur as well consumer spending will happen. In addition, high growth requires efficient resources allocation, structural policies measures that enhance competition in domestic sectors. Political interests by varies groups should also be countered to accelerate growth so that China growth model is sustainable in future. This will shift it from producer based model to more robust total factor productivity. Besides, China will likely to face scarcity of unskilled labour if the government does not invest in innovation and education opportunities.
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