Assignment 1

QUESTION NO.46

SHOULD INVESTORS WORRY ABOUT CHINA’S GROWTH ?

Why is china growing so fast?

China is a key economy. The U.S. and most of the Western world have their own problems, especially huge deficits and high unemployment. These countries will all have a tough time restoring growth.China is in a much stronger position These countries will all have a tough time restoring growth.China is in a much stronger position. The savings rate is 35% to 40%.

INTRODUCTION

There are many reasons why china is growing so fast. Here are some major ones:

1.China’s unique history leading to her current economic miracle.
Years of humiliation, suppression, and suffering in the past 100 plus years, most recently the
Cultural Revolution in particular, had immensely steeled the Chinese people's determination to
never look back and only look forward. It also fueled Chinese people's thirst to learn and
drive to act.
2. Chinese culture, tradition, and mindset.
Chinese people are in general single-minded and hardworking in their trait as molded by
its culture and tradition. Chinese people are not strictly religious, which allow them to be
open minded. Chinese people value family and fiscal responsibility, which make them
entrepreneurial. Chinese people value education and social status, which provide them
additional drive to excel.
3. China's single-minded government leadership.
Single-minded leadership, if steering at the right direction, does allow much faster decision,
action, and results. Again, China's unique history made the right direction for the future to be set and not altered.
4. China's cumulative growing productivity, self-confidence, and improving social and
economical environment.

DISCUSSION:

Economists studying China face thorny theoretical and empirical issues, mostly deriving from the country's years of central planning and strict government control of many industries, which tend to distort prices and misallocate resources. In addition, since the Chinese national accounting system differs from the systems used in most Western nations, it is difficult to derive internationally comparable data on the Chinese economy.

China is the world’s fastest growing economy and is also the second largest.

MEASURING CHINA’S ECONOMIC PERFORMANCE:

The official estimates of the Chinese National Bureau of Statistics exaggerate GDP

growth and need adjustment to conform to international norms as set out in the 1993

System of National Accounts (SNA). This paper presents and discusses the necessary

adjustments. The two major contributions are new volume indices for the industrial

sector and for “non-material” services. Finally, in order to measure the level of

Chinese GDP in welfare terms, we use a measure of purchasing power parity (PPP)

instead of the exchange rate approach

Figures for Chinese economic growth consequently vary depending on how an analyst decides to account for them.

Although economists have many ways of explaining--or modeling--economic growth, a common approach is the neoclassical framework, which describes how productive factors such as capital and labour combine to generate output and which offers analytical simplicity and a well-developed methodology. Although commonly applied to market economies, the neoclassical model has also been used to analyze command economies. It is an appropriate first step in looking at the Chinese economy and yields useful "benchmark" estimates for future research. The framework does, however, have some limitations in the Chinese context.

Original data for the new IMF research came from material released from the State Statistical Bureau of China and other government agencies. Problematically, the component statistics used to compile the Chinese gross national product (GNP) have been kept only since 1978; before that, Chinese central planners worked under the concept of gross social output (GSO), which excluded many segments of the economy counted under GNP. Fortunately, China also compiled an intermediate output series called national income, which lies somewhere between GNP and GSO and is available from 1952 to 1993. After making appropriate adjustments to the national income statistics, including adjusting for indirect business taxes, these data can be used to analyze the sources of Chinese economic growth.

Many stocks in China are not cheap, especially relative to their growth rates, but U.S. investors can take advantage of an unusual opportunity. China makes it difficult for companies to sell stock, so almost 1,500 Chinese companies have gone public in the U.S.

Legally, these are American companies, meaning Chinese citizens cannot invest in them, and because they are in China, U.S. investors often shy away from them. As a result, many of these stocks are bargains.

Most investors saw things in a less apocalyptic light yesterday but they were nevertheless concerned about the pace of growth and inflation in China.

Investors took a cautious line, offloading equities and commodity-oriented currencies. For a second day the antipodean dollars fared worst while the Canadian dollar sheltered under the wing of the Greenback. Better than expected New Zealand figures for retail sales and the purchasing managers’ index were only of fleeting consolation to the Kiwi. The market chose to associate the yen with the China risks rather than seeing it as a safe-haven, so it followed the Australian and NZ dollars lower.

The US dollar received a boost when figures for weekly jobless claims and existing home sales came in at better than expected levels.Initial and ongoing claims were fewer and home sales rose by a laudable 12.3% December, an increase almost three times greater than forecast.The Philadelphia Fed’s manufacturing survey was less punchy, slipping to 19.3 from a downwardly-revised 20.8, but was drowned out by the home sales number, which appeared at the same time.

So, in the end I can conclude that china is making right move.US investors will benefit from controlling growth

Submitted to: Mr. Gurdeepak Singh

Submitted by: Neha

(MBA 1^st Semester)

(Section-A)