China's fast track economic initiatives: blessings for developing economies.

 
FREE EXCERPT

Byline: Akram Khatoon

China had experienced fastest GDP growth rate around 11% until global financial crisis of 2007, which resulted in down turn of its economy's growth trend and by beginning of 2016 it had gone down by 2 to 3% bringing adverse repercussions on its current account surplus also, which in the past had hovered around 10 to 12% of GDP, but by close of year 2016 it had gone down to 3% of GDP.

Apart from global financial crisis, it was diminishing share of capital and labor as compare to use of latest technology in Total Factor Productivity (TFP). Marginal product of capital was found diminishing or in other words manufacturing sector was taking more and more investments, but return was showing a diminishing trend. Similarly in case of labor of migrant workers from rural areas which remained high during last two decades reached peak level and manufacturing sector due to high labor cost was reluctant to absorb marginal labor. As such total factors productivity (TFP) started going down. In order to arrest this tendency rebalancing strategy started with priority of migrant labor to work in service sector so as to sustain rising trend of household income essential for increasing consumption level as a whole. Accordingly Chinese government has opened service sector to competition.

Besides that now China's government has taken initiatives to be on fast track of achieving lost economic growth rate. In this regard first step was to liberate rural urban migration policy giving flip to 'urban revolution' as a part of rebalancing strategy enabling educated rural youth to get absorbed in highly paid jobs of service sector in particular .For that Chinese government set a target of granting urban residency to around 100 million rural people. To enable local government to accommodate and provide social services to new entrants in cities steps have been taken to enhance local government revenues. Most important being allocation of major share of property tax collected to local government to provide a stable source of revenue. Secondly a major chunk of public sector enterprises' profits to be set aside to ensure funds for public spending on education, health care and environment protection at local bodies level in addition to what is set aside at central level for social sector funding needs.

Liberalizations of Chinese financial system is yet another reformatory approach towards rebalancing of economy.

In line with major economies China's...

To continue reading

REQUEST YOUR TRIAL