The economy of the people’s republic of China is ranked the fourth largest globally in terms of its gross domestic product. The gross domestic product in 2005 was mainly contributed by the private sector. The private sectors contributed to almost 70% of the Chinese economy. In 2006 Chinese economy had a GDP of close to US$ 2,500. This Chinese economic success was mainly contributed by the increase in factories. This was mainly a government directive where they took charge of the transition by using the government’s resources to build more factories. Entirely new breed of factories and manufacturing firms were created.

This resulted to the rise in its economic growth registering up to 16. 9% in the sixties then, 68. 8% in the seventies and 63% in the eighties and there after registering a significant growth of 174% in the nineties. In 2005 Chinese nominal GDP rose by almost 17% making China the 6th economy in the whole world a position which was previously held by Italy. At the start of 2006 china was mentioned as the fourth largest economy in the world after overtaking Britain and France. China is predicted to overtake Germany within the next one year and also to overtake the country of Japan in the next coming two years.

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Though China’s economy has been growing tremendously within the last 10 years its GDP has been low compared to other countries in the Middle East and many countries that are the main exporters of oil. This low pace growth in GDP has been traced as being affected by the China’s large labor force. This has kept down the value of the Chinese Yen due to low rate of inflation. Also there is low rise in per capita income as compared to other countries in the world. This reason has been traced to having been influenced by the slow income rate.

If this goes on the development of China’s economy is predicted to take much longer before reaching its peak. China can still increase the pace of their economic development by ensuring that all corruption cases are dealt with accordingly in order to discourage anybody who is eyeing to loot from the government. The ways and methods of ensuring that everybody pays taxes should be introduced. All those firms which are not contributing in terms of economic growth should be shut down. (Chen, 2002) Though China’s economy has been growing tremendously, there are many short comings and challenges which they have faced along the way.

These challenges have contributed to slowing the rate of growth in this economy. These challenges mainly occurred when China was in its full rate of development. Labor shortage. In the begging of 2005, there was stronger demand of workers due to the increase in the number of factories. People could choose whatever job they wanted in terms of the working conditions and the amount of wages they pay. Another reason which caused the decrease in labor was the introduction of one child policy. This policy reduced the number of young people who were entering into labor market.

This led to the hiring of unskilled labor because most young people who were learned preferred to continue with the studies rather than being employed and offered a peanut pay. This led to reduction of many industries to rural areas where they could get more cheap labor force. Overheating of the economy. The rapid growth in the Chinese economy also led to significant repercussions. The higher rate in economic growth spurred the higher rate of inflation. The economic growths in China were mainly contributed by the increase in large-scale investments.

This investments has resulted to higher demand of good infrastructure which is by far lacking in some parts of China. This has affected negatively to the development of the China’s economy. As compared to other countries the rate at which China’s investment is performing in terms of returns is still low and yet they are not in the same development bracket as China. (Home Grown Growth, 2006) Taxation. The problem of taxation has also negatively influenced the stability of the china’s economy. This has led to reducing of taxes charged for certain industries.

This was done in order to encourage the local industries to effectively compete with other industries from other parts of the world. Another reason was to encourage more industries to be developed in many parts of the country including the rural areas. Environmental pollution. Rapid industrial development has led to the increase in the pollution. Most of the cities and towns in the China are considered polluted. Most people also lack access to clean water because most of the rivers in China are polluted. Air pollution has led to the increase in death due to complications caused by air pollution, related illnesses.

Environmental pollution has also resulted to scarcity of water leading to a major blow to people who are living in urban areas. This has also lead to diversion of rivers in order to reach people who mostly need to use it. This has resulted to spending of more money. Rising cost of Chinese exports The higher cost of Chinese exports led to low demand in purchase of their product. This was mainly due to stiff competition from other nations exporting almost the same product. The economy was negatively impacted in that the returns of the investments were very low as compared to the input.