What is the Importance of GDP?
Gross Domestic Product or GDP is one of the main factors that help in determining the economy of a country. It entails the total currency value of all the services and goods produced during a specified period of time. If you have heard that this year’s GDP is up by 3%, it means that the economy has grown by 3% over the last year. The case in point over here is China GDP.
China is the second biggest economy in the world. In the last two decades the Chinese economy has catapulted to amazing heights. Look at the figure below that shows a graph for the last 10 years.
The graph clearly depicts how Chinese GDP has grown from a mere $1,200 billion in 2000 to approximately $6,000 billion in 2010.
Historical Data of China’s GDP
In 1953 the country’s hyperinflation was checked and civil war ended. This pushed the GDP to 15.6%. However, in 1958-59, in an effort of “Great Leap Forward”, the agricultural output fell which ultimately resulted in GDP fall in 1960-62. As a matter of fact the GDP fell to -27.3%.
Restoration of the economy in the year 1963-66 helped restoration of the market economy and the GDP was 10.2%, and this also helped promotion of agriculture. In the 1960s China witnessed “cultural revolution”, which again pushed the GDP up. But the 1976 widespread earthquakes that had an effect on the agricultural output and industries, coupled with Mao’s death affected GDP, which again fell.
In 1980s China liberated its foreign policies and a fresh wave of foreign investment resulted in a double-digit GDP growth. The beginning of 1990s saw massive foreign direct investment flow, which not only improved economy by improving trade, but it also increased the inflation rate. This trend continued until late 1990s. Continued foreign investment also resulted in high foreign exchange reserves.
In the 21st century, China’s GDP has remained between 8% and 11.5%. In 2012 when Chinese premier Wen Jiabao announced that the country is cutting its growth rates to 7.5%, economies around the world were looking for answers. Well, China wants to move towards rebalancing its economy.
In 2010 China became the second largest economy in the world just after the USA. It had outshined Japan in 2001. The fact is that its combined agricultural and industrial output dollar value currently is higher than the US. However, the country is next to the US as far as the value of services is considered.
Pitfalls of The Economy
Even though these facts are so amazing, the per capita income is much less – lesser than the world averages. This is due to several reasons. There are many economic challenges that the Chinese government is facing currently. Some of them are:
1. China has millions of migrants. The government is finding it difficult to sustain adequate job growth for these migrants as well the new entrants in the job market.
2. Corruption has become rampant and the government is facing issues to arrest it.
3. One of the main economic challenges that the country is facing is how to contain the environmental damage in this rapidly changing economy.
There is more economic development in the coastal areas than the interiors of the country. Environment is deteriorating because of factors such as soil erosion, higher air pollution and a falling water table, especially in Northern China.
In 2010-11, China introduced credit-fueled stimulus program. This resulted in high inflation. Even though the government introduced some measure to contain that, the GDP growth slowed and was 9% in 2011.
The economic slowdown in the neighboring Europe will pull down the Chinese GDP further in 2012. In March 2012, the Chinese government introduced the 12th five year plan, which stresses enough that the country’s domestic consumption should increase and there should be less dependency over the exports in the future. These economic reforms have helped gain a marginal improvement in the GDP.
It is interesting to note that China’s GDP (purchasing power parity) is $11.29 trillion currently.
1. The real GDP growth rate was 9.2% in 2011, 10.5% in 2010 and 9.2% in 2009.
2. The per capita income was estimated to be $8,400 in 2011, which is higher than 2009-2010 figures of $7,500.
3. The GDP comprised of the following sectors – agriculture (10.1%), industry (46.8%) and services (43.1%).
4. The labor comprised a strong 795.5 million, but at the end of 2011, the working age population was 1.0024 billion.
5. The unemployment rate was 6.5% in 2011 – higher than 6.1% in 2010.
6. In 2011 the population that was below the poverty line stood at 13.4%.
7. The country’s revenues exceeded $1.6 trillion, while the expenditures were $1.7 trillion.
8. The inflation rate was 5.4% in 2011.
Impact of Euro Zone Business Activity in China
In June 2012 the exports hit their weakest level ever since 2009. The economic growth in China is expected to slide as the country gets influenced by the Euro area debt crisis. This slide may further get accelerated by the property controls that may hit the domestic demand.
A few interesting takeaways
1. China has set a record by doubling its GDP in 9 years from 1996.
2. In 1972 the bilateral trade between the US and China was less than $100 million, but now it is $1 billion a day.