China Gdp Concept

CHINA

A) Gross Domestic Product (2003-2007)

Causes of the fluctuations in growth rates:

During these 5 years, the Gross Domestic Products (GDP) increased. This means that the country is in the expansion process in the business cycle. Increase of agriculture production, rapid growth of industrial production, growth rate of investment in fixed assets, growth rate of primary, secondary and tertiary sector, market prices (e.g. food prices, fuel prices), consumer markets, development in foreign economic relations or Trade and Income of urban and rural households contributes to the rise in the GDP.

In 2004 and 2005, both years have the same GDP. This is due to the increase in the electrical output for 2004 and industrial and agriculture sector for 2005.

In 2007, GDP growth slowed down due to the United States facing potential recession which precedes a reduction in demand for Chinese exports.

Another factor that contributes to the rise in the GDP is the disposable income of the citizens. It has been consistently increasing during these 5 years. Therefore, with the increase in disposable income, the citizens will have more money to spend on goods and services. The per capita disposable income of urban households in 2004 was 9,422 Yuan, a real growth of 7.7 percent, while the per capita net income of rural households was 2,936 Yuan, a real increase of 6.8 percent, both representing the highest growth since 1997.

Concepts of GDP:

GDP can be calculated using different methods such as the output approach, income approach and expenditure approach.

Output approach: Value Added of Goods Producing Industries + Value Added of Services Producing Industries

Income approach: Rent + Wages + Interests + Profits

Expenditure approach: C + I + G + (X - M)

These three approaches must be equal in order to get the real GDP.

Total Output = Total Income = Total expenditure

B) INFLATION RATE (2003-2007)

Formula to calculate Inflation Rate:

Causes of the fluctuations in inflation rates:

In year 2003, the global economy struggled to emerge from recession as it faces the highest risk of deflation during the last two years. Eventually, aggregate demand will fall as the economy has yet to recover from the recession. Therefore, the world commodity prices including China are declining despite the recent hikes in oil prices and also food prices. In addition, investment keeps boosting manufacturing capacity, and most goods are already in oversupply. Hence, the prices are being pulled down.

In the first 3 years from 2003 to 2005, the inflation rate is seen to be increasing from an initial rate of -0.8% in 2003 to 4.1% in 2005. Firstly, the increased in the inflation rate was due to the lagging effect of price hikes at the end of the 2003. Secondly, grain prices contributed significantly to the mounting inflationary pressure.

Last of all, the rise in inventories of cars and production steel and cement result in the higher cost of production this will then cause a leftward shift of the SRAS curve as depicted in the diagram above, which leads to cost-push inflation.

In the later two years, 2006 and 2007, the inflation rate eventually slowed down. In some sectors, manufacturers have overcapacity and with competition present, prices are being pulled down. Besides that, an ample supply of food and raw production materials are also the cause for the lowered rate of inflation. In addition, the cost of food increased at a slower pace.

C) Unemployment Rate (2003-2007)

Unemployment Rate - % of economically active population

Formula to calculate Unemployment Rate=

Causes of the fluctuations in unemployment rates:

Over the past 5 years, the unemployment rate in China has been decreasing from an initial rate of 4.3% to 4.0%. The decline in the unemployment rate was due to several factors. Firstly, China is facing an economic growth as the economy is booming and as a result, more jobs are being created. Secondly, the government including departments carried out policies concerning employment and unemployment. It includes a series of preferential measures in taxes and loans in order to encourage businesses to hire laid-off workers. In addition, the policy also aims to help the jobless to set up their own businesses. Thirdly, a number of new job opportunities were created through flexible employment ways.

In 2004 and 2007, jobs were created for the urban residents and the jobs created were more than expected. These jobs were then able to bring down the unemployment rate despite more people entering the workforce. Besides that, plentiful jobs opportunities were created for the local residents with the start of numerous infrastructural and industrial projects as well as new airport.

The government has also employed money on reemployment work which was able to help those laid-off workers to attain a new job including those who