China essay part 2
However, unlike the US economy, the Chinese economy keeps growing and still has a considerable potential to keep growing in the future due to the development of the services sector, for example (Kuotsa, 2008). In such a situation, China can maintain its steady growth which though may be not so high as it used to be in the 2000s. At this point, it is worth mentioning the fact that the development of Chinese economy relies heavily on the Chinese export at the moment. However, China has the huge internal market potential since, at the moment, the consumption within China is still low, taking into consideration the demographics and the economic potential of the population of China. Therefore, in case of possible economic difficulties, China can enhance its competitive position consistently through the re-orientation on the domestic consumption, if there are problems in international markets. For instance, if China faces the problem of a new global financial crisis, China can just shift to the stimulation of the internal consumption within the country to compensate possible losses in international markets because of the decrease of demand on Chinese goods and services internationally.
Consequently, the development of the Chinese economy still has a considerable potential and the current decrease of the account balance is not disastrous for the domestic economy because the Chinese economy could not just grow at such a high rate as it used to grow in the past decade. At this point, multiple factors have had a considerable influence on the development of the Chinese economy and its account balance, such as the global financial crisis of 2008 which triggered the drop of demand on Chinese goods and services on international markets. At the same time, the growth of the Chinese economy was too high in the previous years that made it difficult to keep up the pace of the growth at such a high rate.
The currency rate of Chinese Yuan has strengthened its position compared to the US dollar and other major currencies, including Euro and others. The change of the currency rate was probably dependent on the change in the account balance of China, its export and import payment balance, and the overall economic development of the country along with financial policies conducted by the government and central bank of China. At the moment, the decrease of the account balance is accompanied by the enhancement of the national currency of China, Yuan. The strengthening of Yuan coincided with the increase of the current accounting payment balance of China which peaked in 2008, when the Yuan exchange rate has get the highest point compared to previous four years and remained stable within the years to follow as well as did the accounting payment balance.
On the other hand, researchers (Rodrick, 2012) place emphasis on the fact that the rise of the national currency and its strengthening compared to the US dollar, Euro and other currencies, may trigger the overall decrease of the account balance. At this point, it is important to understand that the increase of the exchange rate of Chinese Yuan means that the price of Chinese goods and services for other countries has increased respectively to the increase of the Yuan exchange rate compared to the US dollar or any other global currency. To put it in simple words, if an item manufactured in China cost $100, when the Yuan exchange rate to the US dollar was 8 to 1, then the same item would cost $125 now, when the exchange rate of Chinese Yuan to the US dollar is about 6 to 1. In such a way, the strengthening of Chinese national currency decreases its exporting opportunities. At any rate, Chinese companies have either to decrease the price of its products and services to keep the price at the same attractive level to customers in foreign countries or to increase the price to maintain the stable level of revenues from the export of goods and services. At the same time, Chinese companies have another alternative to compensate possible losses in international markets by the increase of sales in the domestic, Chinese market. However, such a change raises the problem of the development of new strategies to enhance the consumption within China. At this point, the increase of consumption in China depends on multiple factors, such as the buying power of the local population, the inflation rate, the unemployment rate and many other factors. At the moment, the export is still the priority for the development of Chinese companies so far, even though it makes them dependent on the situation in international markets and may decrease their revenues in case of the enhancement of the national currency rate which also is accompanied by the drop of the account balance.
Thus, taking into account all above mentioned, it is important to place emphasis on the fact that the development of the Chinese economy is accompanied by the steady growth. At any rate, the Chinese economy keeps growing, in spite of the global financial crisis of 2008 and its negative effects. In this regard, the account balance of China reveals the structure and overall development of the Chinese economy. At the moment, the Chinese economy is oriented on the goods’ production mainly which contributes to the steady growth of the Chinese economy so far. However, in the course of the last decade the accounting balance of China has decreased and cannot grow as fast as it used to be. On the other hand, the decrease of the account payment balance of China is accompanied and, to a certain extent provoked by, the enhancement of the national currency of China, Yuan. Nevertheless, China still has a considerable potential for the further economic growth maintaining its exporting potential along with the stimulation of the domestic consumption.
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