The Chinese Government Should Restructure The Economy.

The Chinese economy was a closed economy before 1978. Since the Chinese economy was opened up in 1978, it had been growing rapidly before the 2008-2009 Global Financial Crisis. A good economics tutor Singapore who provides economics tuition to junior college students can show the time series data on economic growth in China during the period of time.

Export-Driven and Investment-Driven Economic Growth

The rapid growth of the Chinese economy between 1978 and the 2008-2009 Global Financial Crisis was largely due to the substantial increase in exports and investment expenditure. A substantial increase in exports and investment expenditure will lead to a substantial increase in aggregate demand. When this happens, national output will rise substantially. One can consult an economics tutor Singapore about the effect of an increase in exports and investment, through the multiplier process, on national output. Exports in China were rising rapidly between 1978 and the 2008-2009 Global Financial Crisis due to two main reasons. First, the cost of production in China was low largely due to the large pool of labour and hence low wages. Second, the Chinese central bank was continually selling domestic currency and buying foreign currency in the foreign exchange market to keep domestic currency artificially cheap. Investment expenditure in China was rising rapidly between 1978 and the 2008-2009 Global Financial Crisis due to two main reasons. First, the cost of production in China was low largely due to the large pool of labour and hence low wages. Second, the consumer market in China was large due to the large population. However, although the export-driven and investment-driven economy growth strategy worked very well in China between 1978 and the 2008-2009 Global Financial Crisis, it is unsustainable. Any good and experienced economics tutor Singapore is able to help you get a good grasp of this concept.

Slowing Economic Growth

Although investment expenditure in China is still growing, the growth has been slowing down since the 2008-2009 Global Financial Crisis. Investment expenditure in China was rising rapidly between 1978 and the 2008-2009 Global Financial Crisis. However, the growth of consumption expenditure was not able to keep pace with the growth of investment expenditure. As a result, the problem of excess production capacity in China was worsening. When firms have a large amount of excess production capacity, they will not invest in new factories and machinery. As a result, the growth of investment expenditure in China has been slowing down which has led to slowing economic growth since the 2008-2009 Global Financial Crisis. You can find a good economics tutor Singapore who provides economics tuition to students in junior college to learn effect of the growth or investment expenditure on economic growth. Although exports in China are still growing, the growth has been slowing down since the 2008-2009 Global Financial Crisis. As the Chinese economy grew, the exports increased. As the Chinese economy became the second largest in the world, and was on path to become the largest, the rest of the world could not absorb China’s rising exports. As a result, the growth of exports in China has been slowing down which has led to slowing economic growth since the 2008-2009 Global Financial Crisis. You can take economics tuition from an experienced economics tutor Singapore to learn the relationship between the growth or and exports and economic growth.

Economic Restructuring

Due to the above reasons, the Chinese government should restructure the economy from one which is export-driven and investment-driven to one which is consumption-driven. When the growth of consumption expenditure in China rises, the growth of aggregate demand will rise which will lead to higher economic growth. Furthermore, a high growth of consumption expenditure will solve the problem of excess production capacity in the economy. When this happens, the growth of investment expenditure will rise which will also lead to a rise in economic growth. The consumption-driven economic growth model is sustainable in China, as least for the current generation. This is due to the large population and the high savings rate. An experienced economics tutor Singapore can provide a good explanation on the consumption-driven economic growth model.

Linda Geng

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