Economics management help essay on: Economy of china

IntroductionThis essay describes about the Inflation and its impact on the economy of the China. This essay takes into consideration causes of inflation, impact of the inflation on the economy and what can the government do to solve the problem. As per the article many economists think that January’s jump will not convert into a fashion, and they expect that inflation in the month of January to soften and remain easing throughout this year to come under 4% for year 2012 (Today business, 2010).  This would permit Beijing to keep a targeted lessening of fiscal and monetary policy. According to the Senior Analyst at IHS Global Insight, due to weakening demand this year, they think that disinflationary pressure shall remain to apply itself throughout this year and brings entire –year CPI to nearly 3.5% (Gilani, 2011).

Inflation can be defined as increase in the normal level of the prices of services and goods in the economy throughout a period of the time. It can be said that China is recently the second greatest economy in world. At the first sight, everyone thought about the China is developing well and its growth of GDP increased by 0.2% in the year that is impressive (Finance and Investment.com, 2011). It could be stated that the main factor which affect the Inflation in China was the greater prices of the food. Due to greater prices of the food, rate of inflation in China in January 2012 had increased from 4.1% to 4.5% throughout the holiday season of New Year to break the 5 months softening trend (Business Recorder, 2010).  But on the deeper inspection, outcome of the aggressive growth conventionally is inflation. Generally, when the economy surges, inflation increases because of inadequate resources and resulting in greater production cost. Therefore, the price of services and goods enhances and inflation happens. It can be said that transacting with inflation has become one of the main issue in China. It is examined that Chinese people are demanding higher rate of interest and higher requirements of Bank reserve. Government is entering to fight with this major issue. It is very clear that rate of inflation considers to the normal increase in prices computed against the standard stage of the purchasing power. China has experienced its greatest level of the inflation in nearly 3 years besides government wanted to keep the rise of CPI below 4% (Business Recorder, 2010).  It can be said that Chinese are experiencing the burden of greater costs in prices of food and energy. Increasing cost of oil, commodities, food, property and other resources have influenced the cost of the living. This result in unhappiness with government and Chinese people begin to make crimes. Rates of interest on the bank deposit are restricted to around 2.75% that is below the formal rate of inflation (Gilani, 2011). It is also examined that from the last few years, China has been considered as the strong engine of the economic growth which assisted both developed nations and emerging markets rebounded from financial crisis.It is viewed that inflation rate of China unexpectedly rose in January from 4.1% to 4.5% because of the greater prices of the food. Inflation was a problem for the bank that only currently initiated to loosen monetary policies as the prices viewed to be below control. In, fact IMF advised Beijing to make the stimulus plan in case the economy worsens. It can be said that rate of inflation in China was recorded at 4.5% in Jan of 2012 (Business Recorder, 2010). From year 1994 to 2010, the average rate of inflation in country China was around 4.25% and reached a historical high of 27.7% in Oct 1994 and recorded a low of -2.20% in Mar of year 1999 (Gold, 2012). Inflation rate considers to the common increase in prices measured against the standard stage of the purchasing power. The most famous measures of the Inflation are CPI that measures prices of the consumer whereas GDP deflator measures inflation in entire of the local economy (Gilani, 2011). Beijing views to have moved its concentration to restoring growth rate of China and stay away from the troubling problem of inflation and authorities have called it as property bubble.

This diagram shows the movement in Inflation Rate during the period from 2009 to 2012.

There are some basic factors which will remain to drive the China pace of the inflation such as: more evident culprit is Government of China strict currencies control which had artificially lessened the rate of foreign exchange of Yuan and China unprecedented development rate have resulted in robust demand pull inflation (Bosworth & Collins, 2003). Rampant consumerism mixed with a growing population and shall remain to compel the rise in demand of the consumer. This ultimately results in decreased cost of the production.

It could be stated that Inflation in country China consequences are experienced on economy to a greater extent in several ways, and it is not the positive sign. Because of the inflation there has been a shortage in supply of food and fruit. The prices of food and fruit are increasing that is creating numerous obstacles and most of the consumers of the Chinese are facing complexity to face the same (Gilani, 2011). Moreover these are the staple commodities and people could not exist without them. In, fact prices of several kinds of the Chinese goods are also rising. The world may not predict cheap Chinese goods because of the huge consequence of the inflation. China is experiencing greater cost of the raw material along with the rise in the wages of the labor. This has resulted in greater cost of the production. The manufacturers might not be capable to experience these types of things for such a long. This could make the manufacturers of Chinese to sell their goods at greater price to users throughout the world. It would certainly results in reduction of demand of Chinese products throughout the world market.

ConclusionIt can be concluded that government performs a very crucial role in the growth of the economy and take steps to fight against the inflation. It is significant to permit the government to execute regulatory acts which shall safeguard or reduce inflation. It is very clear that, inflation is very harmful to the development of the economy. Throughout, the inflation time, both the firms and the consumers are badly affected. It is examined that China Government has ensured that to accomplish one of its major economic objectives, Government would try to keep the rate of inflation around 4% for the coming five years. To resolve the inflation, government may pose restrictions in transfer of the foreign currency reserve outside the country. This shall be able to minimize the inflation because reduction and depletion of foreign currency reserve shall be prevented. It is examined that cost of the agricultural inputs such as fertilizers and fuel need to be monitored by Government. Deregulation of fertilizer and fuel prices will increase cost of the agricultural inputs and will contribute to the food inflation. The Chinese Government should continue to subsidize fertilizer and fuel and reduces taxes on the petroleum products. At last, it can be said that impact of private traders and corporate in food economy requires to be controlled. It is mandatory for Central Government to coordinate with State Government on the board and make measures in regards to black marketing and hoarding.

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