Profile of Chinas yuan – overview of economy
This lesson will cover the following
- Economic overview
- Monetary policy authority
- Monetary policy tools
China is the second largest economy worldwide with a nominal GDP of 9.18 trillion USD in 2013, according to the International Monetary Fund (IMF). In terms of purchasing power parity, Chinese GDP is also the second highest (13.4 trillion USD in 2013), following the United States. It is the fastest-growing major economy globally (the average rate of growth has been about 10% during the past three decades). China takes 83rd place in terms of its Gross Domestic Product per capita at nominal values (6 747 USD in 2013, according to the IMF).
The country is the largest manufacturer in the world, surpassing the United States. In 2009 about 8% of global manufacturing output was produced in China, while in terms of industrial production the country was third in the world during the same year. In 2010 the nation accounted for 19.8% of global manufacturing production and obtained the status of top manufacturer in the world, after 110 years of US dominance in the sector.
According to CIA World Factbook, in 2012 Chinese industrial sector accounted for 45.3% of nations total GDP. In 2011 China was the largest steel-producing nation in the world (45% of global output, or 683 million tons). In 2010 the country obtained the status of worlds biggest automotive vehicle manufacturer and also the biggest consumer (18 million new cars sold). Considerable investments were made in the production of solar panels and wind generators, but however, in 2012 nations production capacity exceeded by far local and also international demand for these products. In 2011 China became the biggest market for personal computers.
The sector of services accounted for 44.6% of Chinas total GDP in 2012, while agricultural sector – 10.1%.
Foreign Direct Investment (FDI) on a monthly basis in the country registered an all-time peak of 11.76 billion USD during December 2013. In January this year FDI amounted to 10.76 billion USD, with FDI in nations distribution services sector climbing at an annualized rate of 7.4%, while FDI in sectors such as telecommunications equipment and IT increased 9.2%. Within the period of 1993 – 2010 companies in China have been engaged as either an acquiror or acquired company in 25 284 mergers and acquisitions at an overall value of approximately 969 billion USD.
China is the biggest exporter and the biggest importer of goods in the world. At the end of 2013 nations global trade amounted to 4.16 trillion USD. Chinese exports were at the amount of 2.21 trillion USD in 2013, while imports were 1.95 trillion USD. Most of nations import is comprised by industrial supplies and capital goods, predominantly machinery and high-technology equipment. Approximately 80% of countrys export consists of manufactured goods (textiles and electronic equipment, agricultural products, chemicals etc). Growth of exports has been a major driving force behind Chinese economic growth.
According to CIA World Factbook, in 2013 Chinas largest export partners were: Hong Kong (with a share of 17.4% of Chinese total export), the United States (16.7%), Japan (6.8%), South Korea (4.1%).
At the same time, in 2013 countrys largest import partners were: South Korea (9.4%), Japan (8.3%), Taiwan (8.0%), the United States (7.8%), Australia (5.0%), Germany (4.8%).
Monetary policy authority – the Peoples Bank of China (PBOC)
The Peoples Bank of China is the central bank of the Peoples Republic of China, which is responsible for implementing monetary policy and regulating financial institutions, operating on the territory of mainland China. The central bank is in possession of the largest amount of financial assets among any single public finance institution – its foreign currency reserves increased to the record high 3.201 trillion USD in September 2011.
The Monetary Policy Committee is comprised by the Governor, two Deputy Governors, a Deputy Secretary-General of the State Council, a Vice Minister of the State Development and Reform Commission, a Vice Finance Minister, the Administrator of the State Administration of Foreign Exchange, the Chairman of China Banking Regulatory Commission, the Chairman of China Securities Regulatory Commission, the Chairman of China Insurance Regulatory Commission, the Commissioner of National Bureau of Statistics, the President of the China Association of Banks and one expert from the academia. The governor is appointed into (or removed from office) by the President of the Peoples Republic of China. The candidate for the governor of the PBOC is nominated by the Premier of the State Council and approved by the National Peoples Congress. The deputy governors of the bank are appointed to (or removed from office) by the Premier of the State Council. The Committee performs its functions via its regular quarterly meeting. The opinions, expressed at the meetings of the Committee are recorded in the form of “meeting minutes”.
The major objective of banks monetary policy is to maintain the stability of the value of the national currency and stimulate economic growth. The main tools, which the PBOC uses in order to implement its monetary policy include the reserve requirement ratio, the base interest rate, re-discounting, central bank lending and open market operations.