Download as DOCX, PDF, TXT or read online from Scribd
Download as docx, pdf, or txt
You are on page 1of 3
1.
Economic power is the ability of countries, businesses, or individuals
to improve their standard of living. It increases their freedom to make decisions that benefit themselves alone and reduces the ability of any outside force to reduce their freedom. Purchasing power is a significant component of economic power. Countries, companies, and individuals can acquire economic power by improving their income, thereby adding to their wealth. That allows them to purchase more and better goods and services to meet their needs. The way to increase income is to produce a good or service that provides a real benefit to the world. The laws of supply and demand will see to it that customers will pay the highest price to receive that benefit. For a country, it might mean manufacturing high-tech equipment, providing cheap labor to make consumer products, or having lots of oil. 2.Prior to the initiation of economic reforms and trade liberalization nearly 40 years ago, China maintained policies that kept the economy very poor, stagnant, centrally controlled, vastly inefficient, and relatively isolated from the global economy. Since opening up to foreign trade and investment and implementing free-market reforms in 1979, China has been among the world’s fastest-growing economies, with real annual gross domestic product (GDP) growth averaging 9.5% through 2018, a pace described by the World Bank as “the fastest sustained expansion by a major economy in history.” Such growth has enabled China, on average, to double its GDP every eight years and helped raise an estimated 800 million people out of poverty. China has become the world’s largest economy (on a purchasing power parity basis), manufacturer, merchandise trader, and holder of foreign exchange reserves. 3. The economy of the People's Republic of China is a mixed socialist market economy which is composed of state-owned enterprises (SOEs) and domestic and foreign private businesses and uses economic planning. Since the 12th National Congress of the Communist Party of China in 1982, the economy has been described as socialism with Chinese characteristics. The income generated by state-owned enterprises accounted for about 40% of China's GDP of US$14.4 trillion in 2019, with domestic and foreign private businesses and investment accounting for the remaining 60%. As of the end of 2019, the total assets of all China's SOEs, including those operating in the financial sector, reached US$78.08 trillion. Ninety-one (91) of these SOEs belong to the 2020 Fortune Global 500 companies. Direct foreign investment in China, which totaled about US$1.6 trillion as of the end of October 2016, directly and indirectly contributed about one-third of China's GDP and a quarter of jobs there. As of the end of June 2020, FDI stock in China reached US$2.947 trillion, and China's outgoing FDI stock stood at US$2.128 trillion. Total foreign financial assets owned by China reached US$7.860 trillion, and its foreign financial liabilities US$5.716 trillion, making China the second largest creditor nation after Japan in the world.China is the world's largest economy when measured by Purchasing Power Parity, which is said to be the most accurate measure of an economy's true size 4. China can still rely on the advantage of backwardness, and it has the potential to maintain dynamic growth for another 20 years or more because of the following reasons: 1 In 2008, China’s per capita income was 21 percent of U.S. per capita income measured in PPP.5 The income gap between China and the United States indicates that there is still a large technological gap between China and industrialized countries. China can continue to enjoy the advantage of backwardness before closing up the gap. 2 Maddison’s (2010) estimation shows that China’s current relative status to the United States is similar to that of Japan’s in 1951, Korea’s in 1977, and Taiwan’s in 1975. The annual growth rate of GDP grew 9.2 percent in Japan between 1951 and 1971, 7.6 percent in Korea between 1977 and 1997, and 8.3 percent in Taiwan between 1975 and 1995. China’s development strategy after the reform in 1979 is similar to that of Japan, Korea, and Taiwan. China has the potential to achieve another 20 years of 8 percent growth. By that time, China’s per capita income measured in PPP may reach about 50 percent of U.S. per capita income. (Note that Japan’s per capita measured in PPP was 65.6 percent of that of the United States in 1971, Korea’s was 50.2 percent in 1997, and Taiwan’s was 54.2 percent in 1995.) Measured by PPP, China’s economic size may then be twice as large as that of the United States; and measured by market exchange rates, China may be at least the same size as the United States.