How the Chinese Economy Earns Money

China has the second robust wealth in the world (first is the United States of America). The country grows by 6.9 percent per annum and registered a 2015 economic activity valued at $10.8 trillion. If purchasing power parity (PPP) will be considered a ground, China could outperform America as the largest economy worldwide. Nonetheless, its population of more than 1.3 billion pulls its gross domestic product (GDP) far from U.S.’s higher data.

The second largest economy is 1950’s poor society. After 60 years, it became the number two nation in the world. The answer to how it occurred could be found in China’s five-year plans. The residents of the nation concentrated on gradual economic development and heavy industry, which is what Soviets do.

Heavy industry relates to a business type that is extensive in capital costs, reduced transportability, and increased startup costs to avoid competitors from penetrating its area of business. With each ensuing five-year plan, the Chinese were able to perk up the output of its industrial and service sectors. Consequently, China shifted the control of its economic factors from the public sector to a private one.

China’s perceived flaws are pointed by economies worldwide, particularly on how it retains its yearly growth of nearly 10 percent. Specifically, the Chinese government was picked on currency manipulation to retain the appeal of its exports. The nation was also criticized for not straightening out firms linked to stealing intellectual property.

Agricultural Sector

The agriculture segment of China takes roughly nine percent of the country’s GDP. In 2013, a third of the country’s job market accounts for the sector.  Nonetheless, the figures are anticipated to decline by 2020 by five percent. Rice and wheat are the major crops grown in by Chinese people. The dietary staples of the country still reminisce the Great Famine in China, but remain as the most needed by its people though less profitable.

The second largest economy is rich in vegetables, peanuts, citrus fruits, coffee corn, oilseed, and tobacco among others. For consumption, Chinese also catches and breeds fish. Chicken and pork are also raised by its agricultural people.

The inhabited agriculture in the east is responsible for the country’s chief needs with farms factory-generating fruit, vegetable meat, and milk peripheral to the cities.

The world does not recognize Chinese farmers as most competent. There is nearly no mechanical equipment used in the country, but rather has little irrigation and small plots. In spite of the purchasable machinery for farming, Chinese farmers do not have sufficient budget to acquire the tools and become more effective in their jobs. Enclosed in China’s 13th Five-Year Plan is the agricultural modernization, which was pledged by the government.

Another problem of the country is the spoilage of food, which some areas have to cope. There is no regional authority that guides farmers on what to sow. Furthermore, the farming employees do not even have an idea of their products’ demand during harvest time. As a result, farmers plant the similar crop as inspired by what was popular in the previous years. This is the ground why overproduction is encompassing agricultural areas of China.

The overproduction of crops in China relates underproduction of other plants. In turn, cities suffer from food shortages.

Heavy Industry

The heavy industry of China is one of the fundamentals for its growth. The adoption of the industry is what other countries target for development. At present, China is the manufacturing sector leader worldwide. It delivers nearly 50 percent of the world’s steel demand.

The mining industry of China infuses coal, which according to 2015 record, already reached 3.68 billion tons of production. In the same year, the second largest economy also generated 1.4 billion tons of iron ore, 215 million tons of oil, estimated 70 million tons of salt, and 124.3 billion cubic meters of gas. Compared to South Africa, the nation generates more gold.

The country is reliant on coal. Due to this, the economy is pursuant to the utilization of more renewable sources. China also pushes through further use of natural gas in the future. The Chinese people own multiple reserves of oil. There are also deposits of natural gas yet to be discovered.

Hydroelectricity production in China is highly feasible. In actuality, 2012 marked the completion of Three Gorges Dam, which is the chief generator of electricity for China’s southern cities inclusive of Shanghai.

Manufacturing Powerhouse

Even the United States, being the world’s largest economy, accepts that China is the leader in the manufacturing sector. Apart from its big textile manufacturing sector, the nation also delivers food processing items, machinery, cement, consumer goods, trains, automobiles, planes, and electronics among others.

There are many domestic firms in the country, which distribute software and hardware products. Alternatively, it also assembles foreign electronics. There is a 16 percent jump in the software industry of Chinese during the first ten-month period of 2015. The climb drove the revenues of the country with a surplus worth $490 billion.

The economy is also known for creating automobiles in factories, which are acquired by both foreign and local companies. Nonetheless, the major percentage of the local and foreign vehicle brands is bought by Chinese people. In 2014, China owned up to 244 million vehicles. The car sales growth in the country extended in 2015 by 4.7 percent, which was attributed by 24.6 million sold cars.

China faces intellectual property (IP) charges concerning trade secrets, trademarks, patents, and copyrights of cars produced by local companies. Basically, domestic car companies export automobiles to Russia, Africa, Middle East, and South America. Relative to the country’s singular sales and distribution strategies, each car sale generates high commission for salespeople and dealing firms.

Growing Pharmaceutical Business

China’s pharmaceutical business is poised for growth rapidly. In 2015, the sector grew by 10 percent, making the country’s sector the third largest provider of the world’s prescription drugs. Similar to the automobile industry, the pharmaceutical segment also faced allegations of IP theft.

The distribution system of China for drugs involves different phases. Primarily, the medicines would have to go through numerous ties and pricey wholesaler. Afterward, the hospitals and pharmacies could already acquire the products. Presently in China, the main drug vendors are the hospitals, which take 80 percent share of the pharmaceutical sales.

The market’s majority is composed of local firms. However, Pfizer, Novartis, GlaxoSmithKline, and AstraZeneca, which are foreign companies, are also present in the Chinese sector. China’s government is proposing the availability of patents and increasing over-the-counter (OTC) access. Through the reform and new regulations for the pharmaceutical industry, the investment growth in the market is greatly probable.

Consumer Services

The country is considered to be a paradise for consumer products, particularly luxury goods. It houses the world’s largest shopping centers. The GDP of the country for 2016 third quarter accounts nine percent from the retail sector aside from wholesaling.

The big augment in e-commerce and retail sales is driven by companies like Alibaba. In 2015, the singles day selloff of the company reached a gross merchandise volume of record-high $17.8 billion in a day.

Last year, the Chinese travel and tourism sector provided roughly eight percent to the GDP, which is equivalent to $854 billion.

Real estate, transportation, and construction are also contributors in the China’s service industry.

China has the second largest economy irrespective of PPP or GDP. Compared to other countries in top 10, the nation may not be fully developed yet. At present, the government concentrates on its economic activity rebound.

About the Author
The Stock Signals Philippines is the online news media arm of Equilyst Analytics. Inc., an SEC-registered stock market consultancy firm in the Philippines that guides Filipinos on long-term investing and short-term trading and offers mentoring services.

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