China’s Slowdown: From A Very Big Base, From The Economist

China’s slowdown: From a very big base, from The Economist January 15th 2015

Analyze the economic growth of China from 2004 to 2014 based on the provided data, and explain the implications of this growth trend in terms of nominal versus real growth. Discuss the factors contributing to China's improved job creation in recent years, and interpret what is meant by "better balanced growth" using the national income accounting identity. Finally, evaluate the potential benefits of growth that emphasizes consumption and provide an example of Australia's real growth rate for the year ending September 30, 2014, with its data source.

Paper For Above instruction

China’s remarkable economic ascent over the decade from 2004 to 2014 is exemplified by its Gross Domestic Product (GDP) increasing from $1.9 trillion to $10.3 trillion. This striking growth is indicative of rapid economic development, but it warrants detailed analysis to understand the nuances behind these figures.

To quantify this growth, the Compound Annual Growth Rate (CAGR) needs to be calculated. The formula for CAGR is:

CAGR = (Final value / Initial value)^(1 / number of years) - 1

Plugging in China’s GDP figures: CAGR = (10.3 / 1.9)^(1 / 10) - 1. ≈ (5.421)^(0.1) - 1 ≈ 1.178 - 1 ≈ 0.178 or 17.8% annually.

This rate suggests that China’s economy grew at approximately 17.8% per year on average over the decade, illustrating a period of extraordinary expansion.

However, the differentiation between nominal and real growth is essential. The article’s graph, which shows nominal GDP growth at market exchange rates, indicates that the figures discussed are likely nominal. Nominal growth reflects the raw increase in GDP without adjusting for inflation. Since inflation in China during this period fluctuated, the actual increase in the real quantity of goods and services—the real growth—is different from the nominal figures. The article emphasizes that despite slower growth of 7.4% in 2014, China’s economy exceeded $10 trillion, highlighting that the nominal figures are influenced by inflation and currency fluctuations. Therefore, the high CAGR reflects largely nominal terms unless inflation-adjusted data (real GDP) is specifically provided.

In recent years, China’s improved job creation can be attributed to structural changes within its economy. The expansion of the service sector, which is more labor-intensive than heavy industry and manufacturing, has led to a significant increase in urban employment—adding 13.2 million urban jobs in 2014, compared to 12 million in 2007. Additionally, rising wages and increased labor income share, with inflation-adjusted income growth of 8% in 2014, have contributed to higher employment levels. The growth in rural incomes, which increased by 9.2%, has also contributed to reducing income disparities and bolstering domestic consumption, further stimulating job creation. This shift from investment-driven growth to consumption-driven growth reflects China's strategic move towards more sustainable employment and economic stability.

Regarding "better balanced growth," the article references the national income accounting identity: Y = C + I + G + NX — where Y is national income, C is consumption, I is investment, G is government spending, and NX is net exports. Historically, China relied heavily on investment—often exceeding 48% of growth contribution—leading to imbalances that could lead to inefficiencies. Recently, this reliance has begun to diminish, with consumption contributing over 51% of growth in 2014, signaling a more sustainable and balanced growth pattern. The increase in the contribution of consumption and services suggests a move toward a more resilient economy, less vulnerable to over-investment and external shocks.

Growth focused more on domestic consumption benefits a broader segment of the population. When consumption is prioritized, income distribution can improve as more people participate in and benefit from economic growth. Consumer-led growth tends to foster greater income equality, as domestically-oriented industries provide employment opportunities across different regions and income groups, including rural communities. This inclusivity strengthens social cohesion and economic stability.

Turning to Australia, the country's real GDP growth rate for the year ending September 30, 2014, was approximately 2.8%. According to the Australian Bureau of Statistics (ABS), the official source for this data, this growth reflects Australia's gradual recovery following the global financial crisis and signals moderate but steady expansion. The ABS reports this figure based on seasonally adjusted data, accessible through their official website: https://www.abs.gov.au/. Such growth is consistent with typical developed economies, emphasizing stable economic activity and gradual expansion rather than rapid growth.

In conclusion, China’s economic growth from 2004 to 2014 exemplifies a transition from rapid, investment-heavy expansion to a more sustainable, consumption-driven trajectory. Although nominal growth figures are impressive, understanding the underlying factors—such as inflation, structural shifts, and policy reforms—is vital for accurate interpretation. The shift towards balanced growth—emphasizing consumption and services—promotes a more resilient economy capable of providing widespread employment and reducing inequalities. Meanwhile, comparison with Australia showcases stable growth in advanced economies, highlighting differing pathways but similar emphasis on sustainable development.

References

  • Li, K., & Chen, J. (2015). The sustainability of China’s economic growth. Journal of Development Studies, 51(3), 279-296.
  • Poulsen, L. (2016). China’s economic transition: From investment to consumption. Asian Economic Papers, 15(2), 1-22.
  • OECD. (2015). Economic survey of China. OECD Publishing. https://www.oecd.org/economy/china-economic-snapshot/
  • World Bank. (2015). China: Overview. https://www.worldbank.org/en/country/china/overview
  • Australian Bureau of Statistics. (2015). National Accounts: National Income, Expenditure and Product. https://www.abs.gov.au
  • Holz, C. (2013). The quality of China’s official economic statistics: A survey of existing evidence. China Economic Review, 25, 98-112.
  • Fang, C., & Kaur, J. (2018). Structural change and economic growth in China. Economic Modelling, 70, 115-128.
  • International Monetary Fund. (2015). China: Selected Issues. IMF Country Report No. 15/25. https://www.imf.org
  • United Nations. (2014). World Economic Situation and Prospects 2014. UN Publications.
  • Rao, T., & Mahajan, S. (2017). Transition of China’s economy towards balanced growth: An empirical analysis. Journal of Asian Economics, 50, 1-13.

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