China’s Exchange Rate Regime Reform

Question: Describe about the Chinas Exchange Rate Regime Reform? Answer: Chinese Economy- A Move from Investment Based Growth to Consumer Based Growth Summary: Every economy around the world is looking for growth and they try to achieve the productive resources that the country possesses and taking steps according to the options available and the state of technology of the nation. The growth of an economy generally is achieved in the three modes namely investment based growth where country can through investing in capital goods and capital markets, consumer based growth which means investment of resources in areas of government and household consumption as well and finally growth led from the export led growth within the country. Talking about the Chinese economy which had been famous for the investment based growth had led to a great growth in the last decade. The Chinese economy had a great boost in the years after 2001 through investment led activities as it made the highest contribution in the growth of the economy. But the trend completely changed in the past 5 years where the investment led growth has a lower contribution in the growth of the Chinese economy. The Chinese economy then understood that there is a possible scope of growth only in the consumption sector as the economy started facing constraints due to the unavailability of important sources of production that are required in the investment led sectors of the economy. So it could be said that at this present scenario the investment in agriculture and service would be preferred over the investment in the real estate and manufacturing sector of the country. (Cuia*, 2015) Thus the unallocated and unutilized resources of the economy can be only utilized if the company makes a strategy to move toward the consumption led growth in the near future(Il Houng Lee, 2013) 1: The issue of misallocation of resources had been dealt in the Economic Work Conference where this problem was raised and outcome was decided to be that investments needs to be properly allocated in the areas where the production possibilities are greater and the global economy slow down should be accounted into before framing the economic decisions of the county and its economy. The country like China is highly dependent on exports and so its investment based sector also is highly affected due to the slowdown of the global economy. This problem here highlights the fact that there should be change in strategy so the economic resources are fully utilized and the Production possibilities can move towards the reduction of the unallocated resources of the country as a whole. The concept of PPC implies here as when the resources are non allocate fully there is a under utilization of resources and it needs to be employed on the other available options for the economy so that the point of allocation does not lie inside the curve but lie on the curve at least due to the fuller use of the resources by the country. The PPF helps in determining the allocation of resources in a best possible manner among the output options to provide better employment of resources in the economy.(Elvis Picardo, 2013) 2: In the diagram above it is has been shown that resources of the country are underutilized as the point on the PPF is lying inside the curve which shows that there is a scope of usage of resources but the company is not able to utilize it due to the lack of opportunities of growth in the investment sector. The company is to balance the resources by allocating it to the consumption based growth sector that means that there is a scope that the company will be able to use the resources very well and help the country to analyze the resources in a positive manner so that the growth could be achieved. (CNN, 2014) As shown in the other part of the diagram that the economy is able to utilize the resources in a better manner by the reason of the investment of the unused resources in the consumer based sector due to the global slowdown and badly affected Chinese economy. (Fleisher, 2012) The proper diversion of resources wood help the Chinese economy to boost with great power and support for the country and this would help the country to adapt to the changes as it would provide proper allocation of resources and would help lower the unemployment rates and would be able to solve the problem of choice for the economy as a whole. The change in the economic circumstances would led to the increase in the countrys development and the change in the frontier of the country for the upcoming times as presented here under.(Das, 2014) 3: The Chinese economy has faced the problem due to the attitude towards the investment growth of the country and focused on the consumption based growth of the country had changed many things as this was demanded by the Chinese economy. When the time o f economic slowdown came it was evident that the Chinese government faced challenges and the only way to create a win - win situation was to shift the strategy of the country to the consumer expenditure based growth in the long run. The Chinese economy also witnessed changes as soon it shifted to this consumption based growth as positive results were shown when more than 55% of the total growth was from them only. The path of China was led by the fall in the growth due to the investment functions that it had belief on but the efficiency was improved when the company shifted to other areas of resource where it handled them very nicely. The economy had changed a lot from its end by using the excess investment as a mode to add value to t he future good and service of the company as a whole. The country experienced a better GDP growth in the first year of deciding in solving the economic problem. The excess of money when investment in the sector of household had created the trust of people that China can also survive when the world economy is facing problems. (ECONOMIST, 2012) Bibliography CNN. (2014, April 14). CNN Money. Retrieved from Money.Cnn.com: https://money.cnn.com/2014/10/20/news/economy/china-gdp/ Cuia*, Y. (2015). Chinas exchange rate regime reform: Implications from the experiences of Japan, Korea and Taiwan. China Economic Journal , 1-17. Das, S. (2014). 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