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Economics Project: the United States and China Economy
Economics Project: the United States and China Economy
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Economics Project: the United States and China Economy
The United States and China economics
Introduction
The United States and China are the two strongest economies globally, with the two
countries occupying 40.75% and 34.27% of the world’s total GDP in nominal and Purchasing
Power Parity. With both countries being the spear headers in the economy of the world, the
exchange rates vary with time with peaks and lows seen in both the United States Dollar
(USD) and Chinese Yuan Renminbi (CNY). Lately, the political tensions between the two
countries have been the major factor behind the variation in the exchange rates between the
two currencies. The Yuan has been the most affected as seen in the table. Although China’s
economy is fairly strong, the per capita income three times lower than that of the United
States which has a fewer number of people. China is ranked as the 72nd richest company far
behind the US, which is the 8th richest country in the world. Chinas population has majorly
been the reason behind the country’s inability to take over the economy from the USA with
the country posing a population of at least four times that of the United States. From the
table, fluctuations in both currencies have been seen with both currencies being affected, as
seen from the peaks and lows in the exchange rate.
Dates
USD/CNY
21-oct-2016
6.34366
CNY/USD
Inv.
0.15752
15-OCT-2016
6.73
0.14859
15-OCT-2017
6.58365
0.15200
1-APR-2018
6.26882
0.15923
15-OCT-2018
6.92192
0.14447
4-SEP-2019
7.17894
0.13930
15-OCT-2019
7.08761
0.14124
15-OCT-2020
6.72161
o.14887
Table 1: XE Currency Charts (2020). Retrieved October 16, 2020 Note: the bold figures show the start, peak, and low points
in the exchange rates.
Economics Project: the United States and China Economy
3
Chinas Economy
Gross Domestic Product (GDP)
Before the economic reforms that spearheaded China’s domination of the global
economy, the country was being suppressed by policies that made the economy weak.
However, with foreigners investing and trading with the country, the country had been able to
sustain its economy, leading to its rise to the world’s strongest economies level. As a fastgrowing economy with a high GDP growth rate, China has risen about 800 million people
from poverty. The country became the leading manufacturer and trader with a GDP that
doubled every year. As of the end of 2019, Chinas GDP was worth USD 14342.9 billion
amounting to at least 11.81% of the global economy. The economy of China has been
recorded as the fastest growing economy until lately, where its growth rates have
significantly declined with the country recording a GDP growth rate of 6.6% as of 2018 from
a rate of 14.7 in 2007 (Yang, Wang, Xia, & Zhang, 2019). As seen from the table, the value
of the Chinese Yuan was at its weakest in 2018, with the exchange rate hitting 6.26882, the
lowest rate since 2015. The figure shows that Chinas GDP is failing and would continue to do
so, given the circumstances. Economic analysts blame the drop on factors, some claiming that
this might be due to the political tension the country has with the United States.
Inflation
Perhaps the worst year for China with its economy, the country recorded an inflation
rate of 2.1 percent, with projections showing an increase to 3% in 2020 (Economics, 2017).
For a country that prefers to be ranked as an emerging country, China recorded the lowest
inflation but slightly higher than major economies like the United States. The results of this
are visible where the exchange rate hit its peak for China and Low for the United States. For
at least five months in 2019, China’s inflation rose due to increasing food prices. In March
Economics Project: the United States and China Economy
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2019, the country recorded a food CPI of 4.1 percent, with a rise in the pork prices seen from
swine fever that affected Africa.
Labor and Employment Rate
China’s employment rate dropped from 65.6 percent in the previous year to 65.05% in
2019 despite benefiting from its labor force. With the country having recorded the greatest
rise in its employment rate by 2005, the government put across policies that would control the
sharp rise in the rate of employment. To expand its employment, the Chinese government
works on developing the tertiary industry which includes tourism, commercial trade, and
community services. The unemployed in the country are encouraged to venture into selfemployment while encouraging these setups to acquire laborers. The number of employed
people in China has been significantly decreasing as the economy faces major ripples. After
seeing growth in the past 40 years, it is unlikely that China would continue to witness any
form of growth as signs show a weakening economy. The economic slowdown in China
majorly impacted its employment opportunities, with the US-China trade war affecting
International trade.
Fiscal policy
The government’s share in the total revenues in china was increased as the country
changed the allocation and distribution of revenue amongst the different bodies in the
country. The government, in its aim of ensuring that the taxes are collected effectively, the
governmental tax collection and subnational bureaus were separated. The move was also in
the wake of the dropping tax/GDP ratio putting into doubt the government’s ability to
manage revenue. The results of the separation were seen after the revenue rose from 10.8% of
the GDP to a whopping 22.7% in the year 2013. With this, the government could balance the
growing expenditure keeping the fiscal deficit at 1.4 of the GDP in 2013. In 2015, Chinas
Economics Project: the United States and China Economy
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fiscal revenue grew to 5.3 % amounting to at least1.1 trillion Yuan. For a long time, the
country has been having a centralized fiscal system as the government was in charge of
collecting all the revenue. The local governments were however left with fewer resource
allocation forcing them to rely on loans and property sales to sustain the activities. In 2015,
the country’s debt amounted to at least 15.6 % GDP with most of the debt coming from the
Bank of China.
Factors affecting China’s Economy
Political
As tensions escalate between the United States and China, it is propagated that the
Chinese Yuan could go to as weak as 7.4 against the USD. The drop could lower than the
incident in September 2019, where it hit its highest at 7.17894 (Table 2: XE Currency Charts
(2020). The tensions arise from the treatment of Muslims in Beijing and a security bill passed
in Hong Kong, both of which sparked tension between the two countries. These events are
however, not the first as the war between the countries have been in existence for a long time.
The major cause of the drop in the Yuan in September resulted from the trade war between
China and the United States. In August, president trump impounded at least $300 billion of
Chinese imports forcing the country into the worst exchange rate seen on the Yuan against
the dollar (Li & Lin, 2018).
China had acquired a stable economy with investors being certain of the increasing
value of the Yuan as the economy of China saw growth for over a decade. Upon taking his
office as president, China’s president vowed to shift the Chinas economy into a more marketoriented one. The country devalued the Yu...