Fiscal Policy Case Study

Burgeoning Chinese Economy: Signs of Overheating?

OR

Abstract:

Huge foreign and domestic investment - along with high productivity gains - mainly drives China's economic growth. Massive under-priced savings were poured into huge investment projects, supported by cheap labour. But these very factors - that fuelled China's growth - are allegedly inching the economy towards overheating. For which the government drew administrative measures and monetary policy, whose effectiveness is doubtful. Moreover, China is dotted by contrasting features. It is the world's second largest economy on PPP basis; but ranks 81 on the Human Development Index. Its GDP has been growing above 10% consistently since 2003. But it has 18% of the world's poor - along with naïve welfare programmes, red tape and a swelling pollution.

The case study helps analyse how China's growth drivers are becoming counter-productive. It also helps debate how good is economic growth, at various social costs.

Pedagogical Objectives:

• To understand and analyse the process of economic reforms in China
• To analyse these reforms' effectiveness
• To know how 'multiplier' and 'accelerator' play out in an economy's growth rate
• To debate on the desirable growth rate for a country like China.

Keywords : Chinese Economy, Multiplier Effect, Accelerator Effect, Crowding Out Effect, Interest Rates, Exchange Rates, Transformation of Controlled Economy, Fiscal Policy Case Study, Human Development Index, Economic Reforms and Growth, Public and Private Investment, Sectoral and Societal Impacts of Rapid Growth