This brief examination of China’s economic cycles since reforms

This brief examination of China’s economic
cycles since reforms began in 1978 establishes that its economy has until
recently been dominated by these cycles and that they appear to have resulted
largely from domestic policy actions and reactions. What remains to be seen is
whether these cycles have affected rural areas differently than urban areas and
how these effects were transmitted. There is also the possibility that rural
economic cycles influence national cycles, in part because rural economies
appear to have had some degree of internal dynamism that gives them a more
important role than mere passive recipient of national fluctuations.


We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now


Monetary policy is not only one of the most
important and basic macroeconomic policies, but also an important means of
controlling inflation. There are mainly two approaches to achieve the control
of inflation: firstly, by reducing the growth rate of money supply to inhibit
the aggregate demand; secondly, by increasing the interest rates to restrain
demand of investment and stimulate savings. Thus, in order to balance the
aggregate demand and supply. China’s central bank has introduced and should
continue with the method of reducing currency in circulation in order to boost
the demand for money, therefore reduce the inflation pressures. Meanwhile,
increase the interest rate which leads to reduction in the amount of loans,
thereby, narrow the scale of investment, balance out saving and investment, and
eliminate the gap of demand and supply, thus achieving the purpose of
preventing inflation.


enterprises are important to make the price
relatively stable. Enterprise reform might also useful to cut down the business

Controlling inflation should be considered
from both macro and micro aspects. On the macro aspect, the combination of
fiscal and monetary is required, for instance, through the price control of
energy, real estate, agricultural products as well as other fields. On the
micro aspect, the market competitions and the development of private

measures to reduce level of inflation


Lastly, the inflation makes China’s exports
more expensive. Exports is China’s main force that support the economic growth,
if exports become less competitive, this will definitely restrict future

Secondly, in the labor market, wages are
often determined by the contract that is signed in advance, which means that
the rise in wages always tends to be slower than the rise in price. Therefore,
when inflation occurs, without the increase in wages, workers’ real purchasing
power has declined, thus, resulting in a decline in their living standards.


Firstly, as we know, the most obvious
characteristic of inflation is the substantial increase in price. This increase
is not triggered by the real increase in demand, it is because producers’
speculative action or consumers’ fear of further increase in price. Since
nobody could have the complete information of the market, this uncertainty is
likely to boost more investment and blind consumption. As a consequence, the
whole industry chain and the corresponding industrial structure will be
negatively affected, eventually lose the economic balance and even vicious


Apart from the internal causes, changes in
the international context also bring considerable effects to Chinese inflation.
First of all, international trade may impact the domestic inflation. Global
trade creates internationally economic links of all countries. Any changes in
the global economy also generate undeniable influences on China’s inflation.
For example, American inflationary pressure can be transferred to China owing
to the fixed exchange rate of China for trading activities such as the growing
importation from America (Feyzioglu & Willard, 2008). Approximately,
one-tenth of the inflation in China can be influenced by the US GDP, the US
output and US inflation (Feyzioglu& Willard, 2008).


Consequently, a huge amount of foreign
currency is poured into China which is then converted into Yuan by The People’s
Bank of China (PBOC). Therefore, money is pumped into domestic market which far
exceeds the real demand, making the Yuan depreciate and finally boost the price
level. Precisely, the monetary factor is more likely to be the root of China’s
inflation no matter in theory and in figures.


In the past decades, China has experienced
a rapid economic growth. However, Chinese people have been greatly affected by
the inflation caused by such rapid economic development. Compared with other
years in 2000s, the inflation rate in 2004, 2007, 2008 and 2010 were quite
higher which more than 3 percent (Zhang, 2011). And in 2007 only, the Consumer
Price Index (CPI) increased by nearly 5% from 2.2% to over 7% (Anderson, 2008).
It seems to be clear that inflation rate has not been slowed down yet.
Understanding causes of inflation as well as finding effective measures to
fight against inflation are imperative for Chinese government.

are causes of inflation in China and how to cope with inflation?

Price level analysis


Easier access to information on job
opportunities and fostering the establishment of private employment agencies
would help improve the matching of job seekers with prospective employers.  Strengthening the social safety net. Widening
the coverage of the unemployment insurance scheme and other social safety nets
would be helpful in protecting vulnerable groups.

job search services


To encourage greater labor mobility,
restrictions on internal migration have been reduced. However, a further
liberalization of the “hukou” system of residency permits will likely be needed
to allow surplus rural workers to move to the cities and allow unemployed and
xiagang in low-job-growth regions to relocate to higher-growth regions. This
reform will also be important in addressing the widening gap between urban and
rural incomes. Improving worker skills. In order to enhance employment
prospects of the lower skilled rural and urban unemployed workers, better
education and training is important (with assistance from the ILO).



The labor market has become more
market-oriented over the past twenty years, and the main challenge now is to
create quality jobs for the new entrants to the labor force as well as absorb
the sizable labor surplus in the SOE and rural sectors. To address the labor
market pressures, government policies will need to focus on encouraging job
growth in the private sector (especially in the service sector), which has been
the main source of job growth in recent years; reducing barriers to migration;
developing worker skills; facilitating job searches; and strengthening the
social safety net.



-Lack of position mobility inside some
enterprises .

– Absence of career planning instructions
results in graduates inefficiency of job hunting and unrealistic self-position.

-There are 3 million unemployment youth in
urban China, constituting 23% of a 13 million urban unemployment populating.

-Limited qualified faculty, outmoded
infrastructure obsolete curriculum.

– Happens among fresh graduates.

However, we can say that in China demand
supply gap persists in the labor market, unemployment will exist. The pace of
economic growth is also a factor contributing to the different types of


Structural unemployment arises when the
qualification of a person is not sufficient to meet his job responsibilities.
Stated alternatively, structural unemployment arises when the marginal revenue
product of a person falls short of the minimum wage that can be paid for the
concerned job. In China, the workers loses their job because of inadequate
supply of raw materials and isolated location.Demand of domestic competent
professionals is very urgent in some brand new industries.Job openings are
usually occupied by imported qualified talents from abroad.The minimum wage is
set by law or by negotiations in the union. Structural unemployment can also
accompany a situation of zero minimum wages. The extent to which structural
unemployment takes place depends on a number of parameters. Higher the mobility
of labor across different jobs, lower will be the structural unemployment.
Along with the mobility of labor, structural unemployment also depends on the
growth rate of an economy as well as the structure of an industry.

Unemployment OF CHINA


-Seasonal unemployment

-Classical unemployment

-Structural unemployment

-Cyclical unemployment

of unemployment


According to the statistics from World
Bank, China’s labor force accounts for 26% of the total labor population in the
world, while the proportion of China’s natural resource and capital resource
are less than 10%. Because of the complexity of China’s economy structure,
during the transition from a central-planning economy system towards a
market-oriented one. The demand of various job seekers in both urban and rural
areas of China significantly outstrips the supply of new employment
opportunities. At the same time, many job openings cannot find enough qualified
candidates to match them.



2002-2018 |Unemployment Rate in China
remained unchanged at 3.95 percent in the third quarter of 2017 from 3.95
percent in the second quarter of 2017. Unemployment Rate in China averaged 4.11
percent from 2002 until 2017, reaching all the time high of 4.30 percent in the
fourth quarter of 2003 and a record low of 3.90 percent in the third quarter of

Unemployment Rate 

China’s labor market has undergone
significant changes in the past twenty years. A more marketoriented labor
market has emerged with the growing importance of the urban private sector, as
state-owned enterprises (SOEs) have downsized. At the same time, rural
employment growth has slowed, and migrants have sought jobs in the more dynamic
coastal provinces. Despite the progress on reforms, a sizable surplus of labor
still exists in the rural sector (about 150 million) and SOEs (about 10–11


China’s population remains predominantly
rural, despite a strong trend toward urbanization. Over 60 percent were
classified as rural by the 2000 census, compared with 80 percent two decades
ago. While population growth slowed in the 1990s to average just under 1
percent per annum, the labor force grew somewhat faster (about 1½ percent per
annum), owing to a rise in the working-age population.




Over the past three decades, the Chinese
authorities have been pursuing a growth model, sometimes labelled “managed
capitalism”, which can be seen as the outcome of a system of policy incentives
that started maturing in the late 1970s. Given the country’s political and
economic conditions at that point in time, the new Chinese leadership strived
to shape the economy along a “producer-biased” led by investment and exports,
where the direct support of the government to firms and a systematically
undervalued exchange rate were integral parts of policy-making.

First of all, China was initially
characterised by a total lack of the organisational structure necessary to
deploy large quantities of physical capital effectively. For instance, the
country was short of prepared management, reliable maintenance and marketing
teams and an adequate supply of raw materials. In this context China, like many
other countries in the early stages of development, has had an incentive to
provide substantial government support to state-owned enterprises (SOEs) so
that they could generate increasing profits around which they could over time
build not only physical capital, but also the related organisational structure.
This has taken the form, for instance, of: (1)”commanded” loans from the
banking industry to SOEs and local governments, with policy-makers instructing
banks whom to lend to; (2) high reliance of SOEs on retained earnings; and (3)
the setting of very low deposit rates in order to artificially reduce the cost
of credit and ensure the profitability of the banking sector.


Since the end of the 1970s, China’s
policy-makers have had a system of incentives to maximise domestic economic
growth by pursuing a well-identified model of economic development. This model
has proved successful in delivering, for instance, increasing GDP per capita, a
substantial fall in poverty and major gains in world trade shares.



Real GDP: The comparison of economic output
from one year to another. It is an important comprehensive statistic pointer of
accounting system, and also the core pointer of the new national economic
accounting system. It reflects the economic strength and grim scale of a
country (or region).Growth rate: The growth rate of GDP is the increase in GDP
from quarter to quarter. It tells you how fast a country’s economy is growing.
Most countries use real GDP to eliminate the effects of inflation.GDP per
capita: this is a good way to compare the country’s gross domestic product.
This is because some countries have huge economic output because they have so
many people. In order to obtain more information, the use of GDP per capita is
illustrated. This divides the gross domestic product by the number of
inhabitants. It’s a good look for a country’s living standard.

performance of the economy





Since market reforms began in 1978, China’s
economy has shown cyclical fluctuations. These cycles of change appear in
obvious statistical patterns—faster growth and then slower growth, higher price
inflation and then lower inflation, stronger investment flows and then weaker
investment—and all are accompanied by other cyclical fluctuations in a range of
variables and policy initiatives. Most of these fluctuations tend to move
together. Their beauty is that they allow analysis of which fluctuations
influence others and, by extension, which policies might make a difference in
managing China’s economy. In this regard, the cyclical interaction between
China’s formal urban economy and its rural economy is particularly relevant for
the policy issues facing Chinese policy makers today.  This chapter introduces the clearest cycles
revealed by China’s economic data from 1978 to 2005. Subsequent chapters
present overall explanations of what caused these cycles, as well as how
national economic influences have affected China’s rural economy and,
conversely, how rural shifts can affect national trends.