Meanwhile, the essay will cover the policy of these things. Finally, this essay will focus on the development of micro-economy of China. Such as profit, different kinds of the relation between supply and demand, and the different types of industries. Background of the reform and opening-up policy in China: Before the 1978, the economy of China was a typical planned economy in which production levels and prices are controlled by the government, ( Flintiness,A. ,Freudian,Z,. 1987) and all resources was allocate by the Chinese government.
Unfortunately during that periods, China had faced a unprecedented cultural revolution. The Chinese economy had been on the verge of collapse and heavy national fiscal deficits. Because of these reason, the leaders in that current government trying to shift China’s economic system from planned economy to a market economy and to save the economy of China. (Gregory, 2011) 1. 1 Source: The word bank The bar graph 1. 1 illustrate the GAP of China during the period of 1978 to 2012, form this bar graph, we can get that the economy of China increased steadily during these periods and today is the richest time in China history.
The main reason for these good situations of Chinese economy is that the type of Chinese market has changed Oromo planned economy to market economy. Although today’s Chinese economy is not the pure market economy and there are many scarce resources are controlled and allocated by the government such as, electricity and gas. But because of market economy being in China, there are money private enterprises and transnational Corporation could be set up and to compete with state-owned enterprises in Chinese market, as reported by Fulton Www. (1997. P. 1-3) The development of Chinese economy has increased steadily.
Inflation is a problem that a country has to be faced with the development of his economy. There are three key factor cause inflation. . Demand- pull Inflation 2. Cost-push Inflation 3. Expansion of the money supply. ( Madame. K,2012) Chart – historic ICP inflation China – long term inflation development 1. 2 The figure is a line chart which illustrates the rate of Chinese inflation during the period from 1994 to 2012. According the line chart of historic inflation China(Cap)we can get that there is a lot of ups and downs of inflation in China.
The rates always exceed 3% and the highest of the rate even get more than 25% except 1997 and 1998. Harshly, according to ten Tuttle 1 1 snows Tanat ten economy developed quickly rater sass in China meanwhile the inflation rate get the highest time in his history. It is because the real estate boom and thus stimulate the rapid expansion of domestic demand to absorb a large amount of domestic funds and resources, make again into domestic demand led China’s economy. It was a typical Demand-full Inflation, according to Kodiak and Wright(1989,P. 2-5) “Too Much Money Chasing Too Few Goods”.
Look at the fugue 1. 3 it illustrates directly about Demand-pull inflation. Demand-pull inflation happens when aggregate demand rise steadily and comprehensively. This is attributed to an increase in aggregate demand by the four sectors of the macro-economy: households, businesses, governments and foreign buyers. When these sectors concurrently want to buy more output than the economy is capable of producing, actually, they finish competing to buy limited amounts of goods and services on the market. So, general, consumers “bid prices up” causing inflation.
The expression “too much money chasing too few goods” sums up the excessive demand which usually occurs in an expanding economy. [Ibid] 1. 3 (Key Point: Producers confirm this rise in price level because of the need to hire more rocker (or give more overtime) and/or purchase additional equipment to keep step with demand by producing more (Y, to YE) therefore rising the cost of production. These costs are then passed on to the consumer. ) Secondly, Form 2003 to now, we can get that there is a fluctuation about the rate of inflation in China and hovers in 3%.
There are many reasons cause it, such as natural hazard and food shortage . The main reason is that The rise in the price of domestic factors of production, combined with the purchase of raw materials, fuel and power prices, cost factors lead to rising prices promote inflation. So that it is a typical Cost-push Inflation. Over the development of macro-economy in China, let’s have a look about the development of micro-economy in China. As this essay mentioned before, form the new Chinese government have been set up to 1978.
The type of economy in China was a pure planned economy likes today’s North Korea, any resources was controlled and allocated by the center government. After 1978, China’s economy gradual turn the form of the market economy. In the rest paragraphs, this essay will focus on the Supply and demand relationship which is decided Jointly by consumers and genuineness in the market economy and use some examples to illustrate it. Because under the planned economy, the demand and supply are rationed by the central government. So that this essay do not talk about it. Figure 2. 1 Figure 2. Figure 2. 3 The fugue 2. 1 shows that the relationship between supply and demand. Through this chart, we can get that supply increase demand increase. Meanwhile, with the price of supple increase the price of demand decrease. The back point is Equilibrium, it is a situation where there would be no further changes. Focus on demand and supply Trademark, tens means Tanat en quantity enema Is equal to quantity supple It Is because when quantity demanded is better than quantity supplied, there is excess demand thus consumers would bid the market price up for limited quantity of goods.
In common, when quantity demanded is less than quantity supplied, there is excess supply so that producers would try to sell by decreasing price. As a result, only when forces from consumers and producers equalize, there would be an equilibrium. ( Chic You OK,2009). For example: Mobile phone was a luxurious thing for most of Chinese people. However with the China’s rapid economic development after reform and peeing up policy, the income of Chinese people increased rapidly. Mobile phone Began to enter normal family. As the biggest population country, the demand of mobile phone increased quickly.
So that, the change in demand should be like the fugue 2. 2. After asses in China, with some of famous mobile phone companies entry Chinese market, the competition of mobile increased highly, the quantity of mobile rose rapidly. So that, the change in supply should be like the figure 2. 3. [Ibid] To sum up. There is a steady increase of Chinese economy since he reform and opening up policy form 1978. It is a good situation for China and China has became the world’s second largest economy due to the fast growth of economy in market economy.
However, these still are some problem for the center government to considerate. Firstly, it is housing problem. Huge population cause the highest demanded for housing. Meanwhile The real estate industry occupies high percentage of Chinese economy. It is very dangerous for Chinese economy due to the highest rate of inflation in asses in China which was caused by the real estate. Thus, if the government’s macroeconomic regulation and control is not well done, Chinese economy may be in danger of backsliding. For micro economy in China, because of China has a large number of resources and the advantage of cheap labor.