China's Current Economic Situation Analysis - Essay Example

Published: 2019-08-30
China's Current Economic Situation Analysis - Essay Example
Categories: Economics Asia
Pages: 7
Wordcount: 1850 words
16 min read

China is a large communist nation that situated in the eastern region of Asia. It is considered to be the worlds largest most populous nation. The nation is characterized by a large landscape covered with desert, rivers, lakes, and grassland. It also has approximately 14,500 km coastline. Beijing is the capital city of the nation, and it is characterized by modern architecture as well as numerous historical sites. The largest city in the nation is Shanghai, a renowned skyscraper-built financial epicenter. China has had the most stable and amongst the best performing economy in the world for the better part of the last quarter of a century. This essay analyzes the nations current economic situation, three top performing corporations in the nation, and a discussion of the comparison and contrast of their Foreign Exchange (FX) Risk management policies. The essay also describes how the Chinese government relates to the three corporations, and how the economic growth of the nation has influenced the growth and development of the three firms.

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Brief Economic History of PRC

China, which is also officially known as the People's Republic of China (PRC), is a large and nation situated in East Asia. It is considered to be the leading most populated nation, with an estimated population of around one point three eight billion persons. The nation is a one-party state, which is governed by the perform renowned Communist Party. The headquarters of the party are situated at Beijing, the capital city of the nation. The government of China exercises its jurisdiction in twenty-two provinces. These include five autonomous regions, Beijing, Tianjin, Shanghai and Chongqing, which are direct-regulated municipalities, and Hong Kong and Macau, which are self-ruling special governmental districts. The party also claims to have a jurisdiction as well as sovereignty over Taiwan.

Since its establishment in 1949 all through to late 1978, China had a Soviet-styled planned economy. However, after Mao died in 1976, the revolution ended. Deng Xiaoping, as well as the new Chinese leadership, started to reform the nations economy. They moved the economy towards a market-oriented differentiated economy, which was regulated under one-party rule. The agricultural collectivization that existed at the time were dismantled while the prevailing farmlands privatized. Consequently, the foreign trade, which was new in the Republic, became a major new focus for the nations economy. This led to the development of the Special Economic Zones. The state-owned enterprises, which were considered inefficient were restructured while the unprofitable entities were out-rightly closed. This led to a massive loss of jobs in the nation.

The contemporary Chinas economy is principally characterized by a large market economy under the control of private assets possession. It is currently described as among the leading illustrations of state capitalism. This is because the nation dominates in various economic sectors such as in energy production and in the manufacturing industry. In addition, the private businesses in the nation have expanded in a large way, with around thirty million private entities being recorded in 2008. As per the year 2014, the nation was ranked to have the world's second-largest economy. This is in terms of nominal gross domestic product, which was estimated to be around US$10.40 trillion. This statistic was analyzed and published by the International Monetary Fund (IMF).

In addition, in reference to the nations purchasing power parity (PPP), the countrys economy can be considered as the largest in the world. The 2014 PPP GDP was estimated to be around US$17.627 trillion. In 2013, the nations PPP GDP per capita was recorded to be US$12,885. During the same year, its nominal GDP per capita was recorded as US$7,590. These statistics placed China behind 80 nations out of 183 nations listed on the IMF list, in terms of global gross domestic product per capita rankings. Over two centuries ago, China has had the largest economy in the world. During this period, it has seen alternating cycles of both economic wealth and decline. The nation is also the world's largest exporter as well as the second-largest importer of various goods and services.

A: Country Introduction

Current Economic Situation

Since 2015, the Chinese economy has experienced a period of monetary market volatility as well as an economic slowdown. This phenomenon has been caused by deep-seated structural issues in the economy of the nation. Some of such factors include the sustained overreliance in public investment as well as foreign exports for growth. There is also the issue of the state-controlled financial sector, as well as the regulatory inefficiency of the financial sector in the nation. The nation has also experienced a pile-up of debt at various levels of the national economy. This issue poses immense risks to long-term expansion of the nations economy.

The Trend in the Economy and Economic Events Influencing the Prevailing Economic Trend

The nations economy rose by 6.9% in 2015. This was a reduction from 7.3% which was the economic growth rate recorded in 2014. The rate marked the slowest growth rate in the nation in the last twenty-five years. As a major driver of the global economy, the reduction attained a major concern by numerous investors around the globe. This news was reported by the IMF, which pointed out that the nations economy was estimated to grow by 6.3% in 2016 and by 6% in 2017. According to the economic analysts in the nation, the reducing growth rate mandates the employment of various economic stimulus to boost the economy. This is because the reducing economic trend is expected to continue in the next five years.

Currently, the nations economic freedom score for the 2016 financial period was 52.0. This score was 0.7 points down from 52.7 recorded in 2015. The nations economic freedom status is considered to be mostly unfree with a global ranking of 144. The Chinese economys regional ranking is 31st, in the Asian-Pacific economic region. The major concerns of the nations economic sector include the poverty rights, labor freedom as well as corruption. In addition, the Chinese economic system has remained immensely vulnerable to political influence in the nation. The Communist Party has emphasized that there is a need to grip essential market principles in an effort to ensure that the Chinese economy continues to grow and develop in the oncoming years.

The Multinational Corporations Operating in the Nation

There are numerous multinational corporation operating in China. Such corporations operate in various factors such as oil, utilities, banking, automotive, construction, insurance, chemicals and telecommunication among others. Nevertheless, there are 95 corporations that were listed by Forbes to be the largest corporations in the nation. Their classification was based on revenue, total assets and net profit for the year 2015. The combined revenues for the corporation in 2015 were estimated to be US$5.8 trillion. The top three largest corporations according to Forbes is Sinopec, which is at the first position, China National Petroleum at the second position and State Grid Corporation which is at the third position.

B: Company Introduction

Sinopec Corporation

Sinopec is a large Chinese Corporation that is headquartered in Beijing China. The corporation deals a variety of products both locally and abroad. For instance, it deals with gas and oil exploration, production and sales of petrochemicals, creation of chemical fertilizers, development of chemical fibers and fertilizers as well as refined oil products. The corporation is listed in the Hong Kong, Shanghai and New York stock exchange markets. The Corporation was founded in 2000 by the China Petrochemical Corporation, which is Sinopecs parent organization. According to the 2014 financial period, the corporations net income was estimated to be CNY46.47 billion. The corporations operating income for the same period was estimated to be CNY73.49 billion while its total assets for the same period were approximated to be 1.451 trillion. The company is considered to be China's largest corporation in terms of petroleum refinery and oil products production. Its refining ranking is second in the whole world. The companys refineries are chiefly situated in the southeast coastal region of China. It also has branches situated in the middle and lower regions of the Yangtze River as well as in some of the northern parts of China. All the companys refineries are situated at superior locations with convenient transportation as well as a robust market.

China National Petroleum Corporation

The China National Petroleum Corporation is a state-owned oil and gas corporation situated in Beijing China. The Corporation specializes in the production and retailing of fuels, oil lubricants, petrochemicals and natural gas. Its trade is both local and international. The Corporation was founded on November 5, 1999, and it is currently headed by Zhou Jiping who is the Chairman and Wang Dongjin who is the chief executive officer. The CNPC is the prime integrated oil and gas corporation in China. It conducts its exploration as well as its production projects in China as well as in thirty other nations around the world. It is also an oilfield services issuer in over fifty nations situated in different continents of the globe. It also has older oil refineries as well as an extensive oil and gas pipeline network that covers most of the Chinese republic. This is in the estimation of the seventy percent of the nations crude oil pipelines. The corporation also has approximately 19,840 gas stations that are situated in different parts of China. Today, the corporation has one thousand nine hundred exploration wells as well as more than one billion metric tons equivalent of validated oil reserves.

State Grid Corporation of China

The Corporation is Chinas largest electric utility providing corporation in the world, and it was founded in 2002. The corporation is state-owned, and its transmits as well distributes power across many parts of China. As in 2014, the corporation had US$333.4 billion in revenue. It recorded a net income of 5.678 billion USD (2011) as well as a summation of 351.4 billion USD (2011) in total assets. The corporations primary headquarters are based in Beijing, but the corporation manages the distribution of power from four regional subsidiaries. After the 2002 electricity reform deemed as the "Plant-Grid Separation", the assets of the corporation were subdivided into five power generation groups. The groups retained the power plants as well as the five regional subsidiaries that initially belonged to the State Grid Corporation. According to the Fortune Global 500 ranking records in 2011, the corporation is the seventh largest in the world. The company supplies power to persons, municipalities as well as autonomous regions. The corporation operates pumped powers stations, which produce hydropower in Hebei, Chongqing, as well as Shandong in China. It also oversees various assets situated in different parts of the world such as Australia, Brazil, Philippines, and Portugal. Currently, the corporation is headed by Yinbiao Shu, who is both the president and the director of the corporation.

C: Comparison of Corporations Foreign Exchange (FX) Risk Management Policies

Companies that conducts its operations in the international markets must put in place management policies to manage the foreign exchange. Fluctuations in the rates of foreign exchange in most cases affect the profitability, valuation of a companys international operations, as well as its cost competitiveness. The lack of a foreign exchange man...

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