China, as a crucial country in the world, is suffering from a variety of costs of economic growth while the economic growth is incredibly fast in recent years. A division between rich and poor, unemployment, and various external costs, unbalance of payments, unstable exchange rate consumption of non-renewable resources and the risk of inflation and banking collapse have been the common social problems in China.
There is a huge gap between the rich and poor people in China. "The top 5 and 10% of earners in China accounted for 19.8% and 31.9% of the country's revenue" (by Richard Spencer in "The Daily Telegraph" published in February 27th 2004). Some people enjoy high quality of living in rich metropolitans such as Shanghai. In contrast, in the poor rural areas, people seek a job in the big cities, so they cannot take care of their children; the children cannot even have an opportunity to receive education, and some of them have been suffering from starvation and diseases. As a consequence, the poor are left behind, which means rich people become richer as poor people remain poor.
A lot of people now have a risk of unemployment in China, because more and more hi-tech equipment is being used to replace the human-labour, in addition, Chinese population is much more than existing working vacancies there are not enough existing working vacancies to cope with the ever rising Chinese population. For instance, since recent years, a lot of Chinese local firms have imported technology and equipment from overseas to product efficiently and grow faster. However, new facilities mean less demand of labours, which could also mean that plenty of workers will lose their jobs as their skills are outdated. The job vacancies are so limited in comparison with the huge Chinese population. In every year, there are millions of graduates that cannot find suitable jobs. As a result, it could cause various social problems such as violence and depression leading to suicides.
External costs of economic growth have reflected in many aspects. Under the Three Gorges Projects, more than a million people who live in Yangtze Delta lost their homes; plenty of forests were damaged to build a river dam. Even though this project can bring many benefits for Chinese economic development, nevertheless, it has created enormous environmental disaster. In addition, the low social security and working conditions have caused a bad result. For example, the number of the miners who suffer from black lung disease has been increasing by 10,000 in recent years. Furthermore, the Chinese government has to increase the expenditure of defense, as China has been regarded that it could become an aggressive country in the future because of the fast economic growth.
The low exchange rate of currency can benefit Chinese exports; however the negative effects still exist. "The cost of imports-both raw materials and component parts for the production line-is rising faster than its exports." (By Richard Spencer in "The Daily Telegraph" published in Nov.2004). In addition, the payments are very unbalanced, which could result in a shortage of goods for Chinese people in the future. "Excessively fast growth in bank lending could add to inflationary pressure," (By the People's bank statement from <the daily telegraph> Nov. 2004). This statement shows that although a low lending ratio can stimulate the economy, an increase in the money supply will lead to sustained inflation.
To produce more and more commodities, firms will utilise more and more capital resources, however some of them are non-renewable. "There is an insatiable demand for coal in China to feed the rapid economic growth in the country." (By Peter Goff in the "the Sunday telegraph" published in Feb. 20th. 2005). Therefore, the shortage of fossil fuels will cause a recession of economy of China in the long run.
Because of the swift economic growth, the demand-pull inflation and collapse of the banking system will easily emerge as the economy seems to be overheating in China. In Chinese market, there is a common phenomenon that the consumers want to buy any thing that they have seen. This will cause a rapid increase in aggregate demand from AD1 to AD2; as a result inflation will emerge.
In conclusion, the Chinese government should consider the costs of economic growth, i.e. a divided between rich and poor, mess unemployment, the various external costs, unbalance of payments, consumption of non-renewable resources and the risk of inflation. These problems have potential risks; they could make bring the Chinese economy be at to a standstill in the future.
To maintain the present positive aspects of economic growth and solve the problems it brings to us, the Chinese government should adopt some effective policies. There are four economic policies i.e. monetary policy, fiscal policy, direct policy and trade policy, which can be used. However, these policies should be connected with Chinese own situations.
Monetary policy is the measure of controlling economy by adjusting the rate of interest. "The People's Bank of China issued an order lifting the required deposit reserve ratio for the major banks to 7.5%" (By Richard Spencer in "The Daily Telegraph" in Nov. 2004). It can reduce the investment of firms to use this policy. As a consequence, the overheating economic growth will be slowed down. In addition, to increase the rate of interest can would encourage the people to save their money; as a result, the aggregate demand will be reduced. That means the likelihood of inflation would be reduced.
Fiscal policy is the measure of controlling economy by setting tax and using government expenditure. This policy would be very useful in China, as the division between the poor and rich rich and poor is extremely huge. The government can set different tax depending on the different income of the people, which means to would force the rich people to pay much
higher rate income tax than poor. Eventually, this policy will make income disruption more reasonable and reduce the confidence of the people presuming wealth to prevent the inflation. Furthermore, the Chinese government can set a high tax on luxury goods such as wine and cigarettes while set a relatively lower tax on normal goods such as rice. As a result, the government should use these expenditures to support the poor regions and help the rural children receive education and help the firms in poor areas such as western area in China to develop their business by giving them subsidies. In addition, the government can use expenditure to improve the country's infrastructure and invest some public sectors such as road building to create more job vacancies for solving unemployment.
Direct policy is that the government control economy by using legislative right directly. For instance, in Shanxi, a lot of coal firms have poor security for their workers; most of them cannot reach the normal standard of working condition. In this case, the government should use legislative measures to grant the workers legal protection based on human rights. In addition, the government should set a law of preventing big consumption of recourses esp. non-renewable recourses to leave a sustained development for the next generations. Furthermore, the Chinese government would better utilise unified leadership and decentralised management, which mean to set a motive collectively but allow the local state organs to set its own rules separately, because different region could have different economic situation such as a wide gap between the rich and the poor.
By using trade policy, the Chinese government should increase the currency exchange rate to balance the payments, which means let imports equal to exports. However, nowadays, Chinese Yuan is suffering from devaluation which is due to it pegged to the falling U.S. dollar. Therefore, to solve this problem would be very complicated.
In conclusion, Chinese government has faced a lot of problems of economic growth, which compel it to adopt some effective policies. Monetary policy, fiscal policy, direct policy and trade policy are effective in different aspects. However, the precondition is to avoid inflation in this fast economic growth.