macroeconomics group assignment

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MacroeconomicsGroup Assignment

Instructor:Nguyễn Hữu Hoàng GiaoClass: IB1804

Group: 5

Semester: Fall 2023Word count: 10,753Student’s Name and ID:

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c) Exchange Rate Policies ... 20

d) Long-Term Growth Strategies... 22

e) Financial and Banking Regulations...26

III- How the Covid-19 pandemic affects the country's economy. ...28

1. Production and Exports... 28

2. Tourism and Service ...31

3. Domestic Trade... 32

4. Pharmaceutical and Healthcare Production...33

5. Labor and Unemployment...35

6. Debt and Finance ...36

7. Health Management Policies...37

a) Positive impacts:...37

b) Negative Impacts:...39

8. Dependency on International Markets ...39

a) Exports ...39

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b) Imports ... 41

c) Macroeconomic impact ... 43

IV- The Chinese government’s policies deal with the effects caused by the Covid-19 pandemic ... 44

1. Stimulus policy...44

2. Tourism and Services Stimulus... 45

3. Healthcare and Medical Supplies Production...47

4. Employment Support...48

5. Debt Management and Financial Stability... 49

6. Healthcare Infrastructure Investment ... 49

7. Domestic Consumption Promotion... 50

V- Conclusion...51

VI- References...52

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Macroeconomics is a branch of economics that studies how an overall economy works - markets,businesses, consumers, and governments. Macroeconomics examines economy-wide phenomenasuch as inflation, price levels, economic growth rates, national income, gross domestic product(GDP), and changes in unemployment rates.

The COVID-19 pandemic has had a significant impact on the Chinese economy. China's GDPgrowth slowed to 2.2% in 2020, the lowest level in over 40 years. The Chinese government hastaken a number of steps to stimulate economic growth, including fiscal stimulus, monetaryeasing, and infrastructure investment.

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nation. To guarantee consistency, the current GDP is adjusted for inflation before beingcompared to previous years. Since real GDP growth takes into account continuous GDP numbers,it is considered a crucial indication of economic growth. With a GDP of almost 25.5 trilliondollars as of 2022, China was among the top nations in the world with the greatest grossdomestic products, second only to the United States. (C. Textor, 2023)

(Briefing, 2023)

China's National Bureau of Statistics (NBS) announced on July 17 that the country's GDP in thefirst half of 2023 reached 59,303.4 billion yuan, an increase of 5.5% and an increase of 1percentage point compared to the first quarter. Mr. Fu Linghui, spokesperson of the NationalBureau of Statistics of China, said that China's first quarter GDP was 4.5%, second quarterincreased by 6.3%; Compared to the first quarter of 2023, second quarter GDP only increased by0.8%. (qdnd, 2023)

Dissecting industrial segments, we find that services have recovered the fastest when comparedto 2022: The agricultural production situation is stable, industrial production is on the recoverypath. In the first half of this year, the added value of the agricultural sector (cultivation) increasedby 3.3% over the same period last year. The service industry grew rapidly, 6.4% over the same

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period last year, more than 1 percentage point compared to the first quarter. (qdnd, 2023)2. Inflation and Deflation

Traditionally, national inflation rates are calculated using the country's Consumer Price Index(CPI). The Consumer Price Index (CPI), a type of economic indicator, is used to monitorchanges over time in the cost of a representative sample of consumer goods and services for acertain population and geographic region. (Statista, 2023)

(Reuter, 2023)

According toZhiwei Zhang, chief economist at Pinpoint Asset Management,even with a 0%CPI inflation rate, the Chinese economy remains vulnerable to deflationary pressure. The revivalof domestic demand is not particularly important in the absence of substantial government aid.Household demand is still being hampered by the fall in consumer confidence in the real estatemarket.

The slow reduction in the average level of prices for goods and services within an economy isknown as deflation. China's CPI decreased by 0.3% in July 2023 compared to the same month

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the previous year, marking the first such decline since February 2021. For the last ten months,the PPI in China has been declining.

3. Unemployment

China's urban unemployment rate dropped from 5.2% in August 2023 to 5.0% in September2023, according to a survey. Since November 2021, the unemployment rate has not been this low.The survey data indicates that the unemployment rate for those who registered for local homeswas 5.1%, for non-local households it was 4.9%, and for non-local agricultural households it was4.7%. The unemployment rate in thirty-one major cities and towns decreased slightly inSeptember, from 5.3% in August to 5.2%. Employees at businesses across the nation worked anaverage of 48.7 to 48.8 hours per week. (TRADING ECONOMICS, 2023)

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Furthermore, there were 187.74 million more rural migrant laborers overall at that time—2.8%more than the year before. The unemployment rate was 5.3% throughout the first three quartersof the year. The administration intends to keep the unemployment rate at 5.5% while adding 12million new urban jobs by 2023. (TRADING ECONOMICS, 2023)

4. Fiscal and Monetary Policy

a) Fiscal Policies

Tax rebates and fee cuts:The Chinese government has implemented a series of tax reliefmeasures for small businesses and individuals impacted by the pandemic. These measuresinclude reductions and waivers on corporate income tax, value-added tax, and individual incometax. The relief measures have been extended to a range of industries, including manufacturing,services, technology, and low-profit enterprises. In March 2022, China issued US$39 billion intax deferrals to small businesses. The government has pledged a total of RMB 2.5 trillion(US$374 billion) in tax refunds and reductions in 2022, with RMB 1.5 trillion (US$224.5 billion)earmarked for VAT rebates. Additionally, the government has extended fee cuts for smallbusinesses, including deferral of social security premiums, housing provident fund payments,loan interest, and reduction of education surcharges. (Briefing, 2022)

Special purposed bond:Local governments in China use special-purpose bonds (SPBs) to fundinfrastructure and public projects. These bonds are limited to nine major areas includingtransportation, energy, and affordable housing. In 2021, the Chinese government set the SPBquota at RMB 3.65 trillion (US$547.5 billion), with around 50% of the funds being used fortransportation and infrastructure projects. The government front-loaded the 2022 quota of SPBs,releasing RMB 1.46 trillion (US$218.5 billion) in late December 2021 to boost spending at thestart of the year. Local governments have been urged to complete the issuance of all SPBsreleased by the end of June and mostly use them up by the end of August, with a total quota ofRMB 3.65 trillion (US$547.5 billion) set for 2022. (Briefing, 2022)

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(Times, no date)

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b) Monetary Policies

PBOC profit transfer:The People's Bank of China (PBOC) announced in March 2022 a profittransfer of RMB 1 trillion (US$149.6 billion) to the government. The funds are intended to beprimarily used for tax refunds and transfers to local governments to provide support for localbusinesses and individuals. (Briefing, 2022)

(Bloomberg.Com, 2022)

Reserve Requirement Ratio (RRR) cuts:

The People's Bank of China (PBOC) has been using cutting banks' reserve requirement ratio(RRR) as one of the tools of monetary policy. By lowering the RRR, banks have more cash tospend, which can be used to provide loans to businesses in need. In December 2021, the PBOCcut the RRR by 0.5 percent, freeing up RMB 1.2 trillion (US$179.6 billion) for banks. In April2022, the first RRR cut of the year occurred, but it was smaller than previous cuts at 0.25 percent,freeing up RMB 530 billion (US$79.3 billion). (Briefing, 2022)

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(Reserve requirement ratio cut in China – will it resuscitate the economy?, 2023)Loan Prime Rate (LPR) cuts:

The loan prime rate (LPR) is a key tool for stimulating the economy. The LPR is the benchmarkcorporate loan and mortgage rate for commercial banks, set by the PBOC. Lowering the LPRreduces the costs of new loans for borrowers, helping to inject more liquidity into the economy.This can help boost housing sales as new mortgages become cheaper. In May 2022, the PBOCcut the five-year LPR by a record amount, from 4.6 percent to 4.45 percent, in part to help boostthe property sector. (Briefing, 2022)

(China cuts the 5-year loan prime rate to boost credit, no date)

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5. Exchange ratesBefore COVID-19 (Pre-2020):

China maintained a managed exchange rate system, where the People's Bank of China (PBOC)tightly controlled the yuan's value against a basket of currencies. This system aimed to stabilizethe exchange rate and promote economic stability. Before COVID-19, the yuan had beenappreciating gradually against the U.S. dollar and other major currencies over several years. Thiswas partly due to China's economic growth and efforts to internationalize the yuan.

After COVID-19:

As China's economy began to recover from the initial shock of the pandemic, the yuan graduallyregained strength. This recovery was due to China's relative success in managing the pandemicand a resurgence of economic growth. The yuan continued to appreciate against the U.S. dollarand other major currencies, reflecting China's economic resilience and a renewed focus oninternationalization.

Exchange rate between the Chinese yuan (CNY) and the U.S. dollar (USD):Pre-COVID-19 (January 2019 - December 2019):

January 2019: Approximately 6.72 CNY to 1 USD.December 2019: Approximately 6.97 CNY to 1 USD.During COVID-19 (January 2020 - December 2020):

March 2020 (Initial impact of COVID-19): Approximately 7.08 CNY to 1 USD.June 2020 (Some recovery): Approximately 7.07 CNY to 1 USD.

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December 2020: Approximately 6.53 CNY to 1 USD.Post-COVID-19 (January 2021 - October 2021):March 2021: Approximately 6.47 CNY to 1 USD.October 2021: Approximately 6.45 CNY to 1 USD.

6. Economic Growth

According to CGTN, the Chinese economy grew from 54,000 billion yuan (about 7,390 billionUSD) in 2012 to 114,000 billion yuan (about 15,600 billion USD) in 2021, with accuracy in theworld economy. proportion increased from 11.3% to 18.5%.

Also, between 2012 and 2021, China's GDP per capita increased from 6,300 USD to more than12,000 USD, surpassing the world's GDP per capita.

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As the world's leading product power, the added value of China's manufacturing sector increasedfrom 17,000 billion yuan (about 2,300 billion USD) to 31,400 billion yuan (about 4,300 billionUSD) - an increase from 22,000 billion yuan (about 2,300 billion USD). 5% increased nearly30% of the world's total production value.

From 2017 to 2021, China maintained its position as the world's leading commercialized countryfor five consecutive years

(Song Minh, 2022)7. Business Cycles

After the outbreak of COVID-19 in December 2019, the normal economic growth of 6%suddenly dropped to 2.2% in 2020. The unprecedented pandemic hindered consumer demand,production, investment, and international trade. In 2021 growth bounced back to 8.4% from arelatively very low base in 2020

Before COVID-19 (Pre-2020):

Economic Expansion: China was in a phase of sustained economic growth for several yearsleading up to 2020. The country's annual GDP growth rate was around 6% to 7%, and industrialproduction was steadily increasing.

Peak: China's economy showed signs of slowing down in the years just before 2020, but it wasstill considered relatively strong. The trade war with the United States had impacted exports tosome extent.

Contraction: There were no major contractions in the years leading up to 2020. The Chinesegovernment implemented various measures to support the economy and maintain stability.During COVID-19 (2020):

Contraction: The COVID-19 pandemic led to a severe contraction in China's economy during thefirst quarter of 2020. Many businesses shut down, and industrial production significantlydeclined. China's GDP contracted by about 6.8% in the first quarter of 2020.

Trough: The economy started to recover in the second quarter of 2020, with lockdowns easingand production resuming. The Chinese government introduced stimulus measures to boosteconomic recovery.

After COVID-19 (Post-2020):

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Recovery: China experienced a robust economic recovery in the latter half of 2020 and continuedto do so in 2021. China's economy quickly rebounded to pre-pandemic levels, with strong GDPgrowth rates.

Economic Expansion: In 2021, China's GDP growth was around 8.1%, which is significantlyhigher compared to most other major economies. Industrial production and exports reboundedstrongly.

Peak: China entered a period of strong economic performance, with growth rates that wereamong the highest in the world.

8. Government Debt

China’s debt ratio has risen to a new high, reversing last year’s deleveraging efforts. The financial sector debt-to-GDP ratio, including external debt, increased by 10.4 percentage pointsfrom end-2021 to 289 percent of GDP by the third quarter in 2022. Weaker economic growth,combined with higher borrowing to finance fiscal stimulus, pushed up the domestic non-financialdebt ratio. Meanwhile, external debt remained low at 12.4 percent of GDP, up only by 0.3percentage points from 2021.

non-The infrastructure stimulus has accelerated subnational government debt accumulation. Localgovernment debt rose by 2.2 percentage points between December 2021 and September 2022 to28.8 percent of GDP, driven by special bond issuance in 2022H1 to finance infrastructureprojects and to compensate for shortfalls in land sale revenues. In addition, the debt of localgovernment financing vehicles (LGFVs) increased to an estimated 48.5 percent of GDP, 2.7percentage points higher than at the end of last year. Meanwhile, central government debt hasremained broadly stable at 20.6 percent of GDP.

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9. Government Policies

a) Expansionary Policies

The Chinese government has implemented monetary and fiscal measures to counter the recentslowdown in the country's economic growth. Despite a peak in GDP growth in Q1 of 2021,regulatory tightening measures and a push for "common prosperity" have led to a downwardtrend in the economy. The 2022 growth outlook is expected to face several challenges, includingnormalization of export growth, increased default risk among real estate companies, crackdownson the housing sector, and a "zero tolerance" approach to COVID-19 that has negativelyimpacted consumption and local government fiscal balance. As a result, growth slowed to 4% inQ4 2021 from 4.9% y/y in Q3 and is projected to further decline to 5.2% in 2022 from 8.1% in2021. The Chinese government has already shifted from a tightening policy stance to a looseningone in response to the slowdown. Of all the policy tools available to the Chinese government,proactive fiscal policy may prove to be more effective than easing monetary policy in 2022.There are two primary reasons for this.(Dong and Xia, 2022)

Firstly, China's monetary easing capacity is limited as the US Federal Reserve has already begunQE Tapering, and interest rate hikes and central bank balance sheet reductions are expected soon.To avoid large-scale capital outflows and significant RMB exchange rate depreciation,unsynchronized and independent easing monetary policies are likely to be halted after the USinterest rate hike begins in March.(Dong and Xia, 2022)

Secondly, the monetary policy transmission mechanism is not operating smoothly in China.Despite recent cuts to RRR and LPR by the central bank, commercial banks are still hesitant to

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