People Republic of China Gross Domestic Product The gross domestic product i-e the total value of all

goods produced and services provided by a country during the year GDP grew at 10.3% in 2010 and china became 2nd largest the reason of such rapid growth might be: y Large scale capital investment y Rapid productivity growth y High rate of savings So it results in additional output that results in additional investment and rapid growth. When compared with Pakistan has 4.8% GDP growth rate in 2010 the reasons might include y y y y y y Lack of FDI due to terrorism Loss in tourism industry Lack of energy crisis Lower PCI so reduced savings Unemployment Indebtedness

Trade Surplus The trade surplus is showing chinas positive balance of trade with 34.7% rise its possible due to y y y y Control over exchange rate system (minimizing exchange rate uncertainty) Extensive capital controls (inflows and outflows) High rates of output and export growth Integration with global merchandize market

Foreign Direct Investment The FDI is external finance invested in companies in a host country as FDI shows increased inflows with 17.4% the results are y Solve the capital shortage problems

y y y y y y y

Access to technology for local economy Productivity gains through spillovers Increased investment in human capital Positive co-relation between FDI and GDP FDI positively impacts fixed asset investment FDI positively impacts foreign trade Transformation of centrally controlled state sector economy to market economy

The reasons of increased FDI in china may be y y y y Favorable regulations and provisions Export-oriented joint ventures Easy licensing procedures Tax benefits

GDP Per Capita Per capita income in china is low and is about 7544$ as we know PCI = national income/population The reason for low per capita income in china is: y y y y y Over population Defective economic planning No jobs Vast disparity b/w rich and poor Poverty

Whereas Pakistans GDP per capita is only $2500.The reason for such adverse fact is inequality in wealth distribution. And other reasons are y y y y y Poor governance Overpopulation High living cost Distortionary institutions Ill-functioning

y y y y

Unequal distribution of land Underdeveloped industrial sector Rising inflation Unemployment

The other factors my include poor law and order and so on. Chinese population The Chinese population is 6.9 billion on 2nd july, 2011. Chinas population growth rate is 0.493% increase in population is due to: y y y y y y y y y Mortality decline Improved health care services Child labor (more child labor results more wage earners for poor family) Son preferences Aging population Ethnicity Migration (rural to urban areas) Foreign nationals Urbanization

Population rate = (birth rate +immigration rate) (death rate + emigration rate) Birth rate The birth rate of china is 12.29 births/1000 populations the possible reasons for such high birth rate may be y Early age marriages y Illiteracy y Son preference Now the rate is dropping in china due to one child policy and other factors such as awareness among married couples moreover low fertility rate and cultural, societal and economic pressures are other reasons for declining rate.

Literacy rate Literacy rate may be defined as the person who can read and write at the age of fifteen or above .The china has literacy rate of 95.9% in 2009. The reasons for such high literacy rate in china may be y y y y y Rural education Subsidizing books Lessening the cost of education Improved reporting system to ministry of education Improved research

The further improvement should be made for the education facilities for disable students and there should be removal of gender disparity. Unemployment rate The unemployment refers that person who is of specific age and without work, available for work and seeking work. The current unemployment rate in china is 4.3%. The cause of this unemployment is graduate unemployment other causes may be large population and sectorial shifts, institutional changes and rural-urban migration may be the major cause of unemployment Population below poverty line The 2.8% of total population in so this include the people who are living in absolute poverty and others are living above that level but below the official low income line. Labor force The estimated labor force of china is 815.3 million and 38.1% is in agricultural sector and 27.8% in industrial sector whereas remaining 34.1% is working in services sector. So from this statistics it can be realized that the majority is lying in agricultural sector and still the improvement in industrial sector is required.

Gross fixed investment It means total business spending on fixed assets it provide basis for future production. The GFI was 46.2% of GDP now it shows that how much government invested in fixed assets such as factories, machineries and equipments Inflation rate (consumer prices) The annual percentage in consumer prices as compared to previous year prices the annual change is 3.2% the price reforms and change in economic restructure are some causes of inflation other reasons are exchange rate policy because exchange rate affects money growth and money growth leads to inflation. Sources of External Finance The external finance means funds that firm or country obtain from outside sources. It includes Public Finance Refers to the government financial management to fine tune the central-local financial relationships to make the deficits of budgets favorable. The Chinese government aims at changing its budgeting procedures, centralization of treasury functions and monitoring of internal and external public spending. The result of such finance framework results in managerial efficiency, operational efficiency and financial accountability. The china achieved this through realizing public responsibility and worked efficiently and effectively to bring social and moral transformation. The final aim behind public finance of Chinese government is to bring technical capabilities and virtuous administrators. The budgeting procedure changes are made to improve transparency and harden the budget constraints. The treasury reform china achieved through cash management, reconciliation of spending reports and the plus point of this treasury management adopted by china is that chines government did not allowed direct transfer of funds from treasury accounts to government accounts (china followed interbank clearing procedure )

Business Investment Informal financing (also called curb market) for working capital needs can be fulfilled in china in form of interest free loans between friends and relatives. Due to political and local conditions there is emergence of informal finance for businesses. This business source of finance includes interpersonal lendings, trade credit, revolving credit and in quasi legal sources of finance includes cooperative foundations and mutual assistance societies.in illegal sources these businesses collect finance from brokers and private money houses. So as overall if we look at the environment whether favorable for business or not we can use ease of doing business index (ranks from 1 to 183) where Chinese government high ranking means that regulations are favorable for businessmen International Finance The international financing in china helps local shortages of capital and easy access to technologies. So from external financing chinas GDP has increased furthermore Chinese have gained access to fixed asset investment, foreign trade, advanced assets and technology. The china made a strategy through depreciating its currency value as a result it became attractive for the outsiders to come and invest in turn china gained benefit like china gained access to the world markets and the competition became the domestic firm of china more efficient. In short the FDI affects the host countrys BOP and GDP Major Industry of China China has diverse economic sector and is contributing in manufacturing and as well as in service sector also. y Power Industry: Thermal, Hydro and Nuclear power industry China has increased the capacity of generators producing electricity and grids are covering the requirements of rural areas as well. This is made possible by the efforts of Chinese government in establishing the coal mines that increased the coal output resulting in the fulfillment of requirements at national level. The china has focused on the production of petroleum and natural gas which results in increased productivity of manufacturing sector.

y Manufacturing Industry: advanced equipment, power generating equipment, nuclear power sets, fertilizers, petro-chemical equipment and so on. This sector results in increased production as a result the increased output increases exports which in turn increases the GDP and the more output production require more labor that reduces the unemployment Industry Value Added The Chinese industries value added comprises value added in mining, construction, electricity, water and gas etc. Value added = Gross output intermediate inputs Value added is calculated without deductions for depreciation and depletion for natural assets. International standards industrial classification (ISIC) determines these standards may be calculated in y y y y Current US dollars Current local currency Annual % growth % of GDP

Manufacturing value added The manufacturing value added has the same procedure of calculation as industry value added that is gross output minus intermediate inputs and calculated through using standards of ISIC the following sectors lies in manufacturing and contribute to % in value added manufacturing y y y y y Chemicals Food, beverages and tobacco Machinery and transport equipments Textile and clothing Other manufacturing

Services value added Includes value added in wholesale and retail trade and personal services such as education, health care, real estate services and calculated using the same ISIC standards as for manufacturing and overall industrial value added index. Institutes are responsible for development of industries y International standards industrial classifications y World bank y OECD National Ministry of industry and information technology Responsible for the regulation and development of production and software industry furthermore also look after the communication, wireless, internet and postal services as well. PAK-CHINA Trade Relationship As there is high demand of Chinese product in Pakistan and Pak-China relations are friendly now the experience of trade in both countries is positive due to y y y y Convenient trade flows Policies are liberal Policies are WTO compliances Positive trends of trade

Imports from China The imports from china is the one of top five source for Pakistan major imports include y y y y y y Machinery Chemicals Garments Textile products Stationary Construction materials

y Tiles y Sanitary y Wares and crockery As Pakistan have comparative advantage in oil seeds, fruits, plastic goods and metals. Whereas China have comparative advantage in machinery and chemical etc. Joint ventures The joint venture between Pak and China include in steel, motorcycle manufacturing and bigger public sector projects are y y y y Karakoram highway Gwadar deep sea port Chashma nuclear power plant Saindak metal project

So as overall it is quite clear that the major imports from china consists of machinery and equipment and Pakistan is still exporting just leather and seafood now Pakistan can increase its exports through improving the quality of goods. As Pakistan has only four exportable items including cotton, surgical sports and leather items so to increase the exports Pakistan needs to diversify its line for exportable commodities there should be proactive export policy and imbalance of trade should be removed. Further to increase the investment opportunities the Pakistan has to focus on its security environment. y The problem which Pakistan has to face due to trade with china is that chinese exporters exports worldwide at low tariff as a result Pakistani exports have to face problems y Quality assurance of chinese importers of goods being exported from Pakistan (in case of low quality chinese importer return the consignment) y Transshipment issues to Pakistani exporters (loading and reloading of consignment before consignment reaches at final destination) As overall PAK-CHINA FTA (free trade agreement i-e both countries give tariff concessions to each other) is giving more benefits to china so to avail its benefits

fully Pakistan has to import and should import raw materials only and should strive for its own industrial improvement. Furthermore PAK-CHINA are close competitor of leather industry so Pakistan should first meets its own requirements then should export fine leather to china when Pakistan exports leather to china it remains unable to cover and fulfill its own demand for leather product Other tradable commodities y y y y y y Information and communication technology export and import Agricultural raw materials Commercial services Food items Fuel items Insurance and financial services

All explained in tabular and dramatic form at the end in annexures. CHINA and IMF y IMF policies are playing an important role in economic monitoring and advice, IMF publishes regional economic outlook for china y IMF runs training and technical assistance to china y China is playing an important role with IMF and helping the developed and developing countries in meeting the global financial crisis. y IMF has complete data on the current account balance of china which means that net trade in goods and services plus net earnings from rent interest, profits and dividend. The IMF represents the data in US dollars it reflects the goods and services and income and current transfers. (Diagram in Annexure) y IMF has also an eye on the chinas import and export of financial services which refers to the insurance services provided by the resident insurers to nonresident and financial services include import and export of intangible commodities. (Annexure) y The use of IMF resources by China and IMF charges i-e the interests payments by china on use of IMF resources is also available in US dollars. (Annexure)

y China IMF purchase account consist of total drawings on the general reserve account of IMF during a year (Annexure) y China IMF repurchases account consists of repayment of outstanding drawings from the general resources account during a specific year (Annexure) China Trade Relations with Europe and U.S y The China-Europe relations have regularized in respect with technological, educational, cultural, scientific, politically and economically have created beneficial relations. y The U.S relations with Europe affected due to the U.S approach towards global war on terrorism and war in Iraq. U.S relations with Europe affected due to Chinas relation with EU and bilateral relations with other European countries y The relations between China-Europe became sophisticated during 2007-08 when European countries began to realize that China has now become close competitor for these European countries. China suffered as a result strict conditions of EU and EU reduced the development aid of china. Still European countries and China are at complex and interesting cross roads in their relations. y Still in spite of good relations between china and Europe the Europe should make some policies to meet economic competition and illegal immigration etc. y Now the continuous growth, security and political issues and achievement of common goal of development of energy sector should be of great importance in trade relationships of China-Europe. y Still there are more commonalities between the policies of Europe and US regarding China but the differences occurs in policies of china and Europe regarding the polices for facing the problems that china can create because of it is emerging as global player y The US maintains the military relations with the Chinese neighbor countries such as Pakistan for strategic and political interests but Europe has no such military relations with the China and other Asian countries.

y Now the Europe and China businesses are in strict competition in Chinese market and to maintain this competition in future the EU, other European countries and U.S have to purchase human capital i-e scientists, engineers from china at higher bids to compete in economic growth. y The both U.S and Europe working to integrate the China in the program of stable peaceful East-Asian program. y Now the EU, European countries and U.S all are making policies with China to bring transformational changes in china and to make china an economical trade country that can meet the requirements, legitimate rights and needs of its large population while maintaining the best relationship with U.S , EU, European countries and with the rest of World. U.S- Europe-China Triangle To make this triangle more prudent and effective we we should in my opinion: y Should improve transatlantic relations to help China to appear as constructive international partner. y Cooperation between U.S-Europe-China triangle We can make this triangle effective by: y SWOT analysis of Europe-China relation for U.S. y Effective mechanism of trilateral cooperation y Long term effective approach for maintenance of relations By adopting such Europe and U.S can maintain effective relations with China

y The process of conversion of China and Europe from neighbors to strategic partners started in 2003 when U.S and Europe relations weekend due to Iraq and Afghanistan war and they became strategic partners while viewing the china as an powerful economic power of world. They relations weekend when the EU member countries visited China in 2006 and in 2007 EU reduced the development aid of China taking in view that china is developing country.

y China is the 2nd biggest economic partner of Europe after U.s in trade and now EU has also become the largest trading partner of China. Now as a result the purpose of trade policies is to gain mutual benefits and to help china at domestic level. y There should be separate trade policy for each sector such as IT, chemical and automotive etc. to meet the future challenges. y Strategic economic issues in trading should be discussed y Risks associated with investments should be dealt y There should be coordination in trade policies. y There should be no violations on unfair use of intellectual property. y They should follow the WTO commitments. y The EU suffered the trade deficit due to unfair trade policies and WTO disputes. y There should be no export of dangerous and tainted and dangerous products by China to EU y Export control over arms and weapons between EU-China y Trade in space related equipments and science and technology also has major share in trade between both the China-EU and other European countries y To solve these deficit problems the competitive capabilities can be improved y China has to improve the standards of its goods to be exported to European countries because Europeans are status conscious. y Meetings and dialogues should be conducted between China and European countries to resolve the issues. The diagrammatic representation of trade of goods and services of European countries can be referred from annexures. Financial soundness of China

y The overall financial soundness can be calculated through Bank capital to Asset ratio it represents the ratio of bank capital and reserves to total assets ratio which means capital and reserves includes the contribution by owner and retained earnings and special reserves

y y

y y

and provisions. And assets include all financial and nonfinancial assets. The financial soundness can be calculated that a country has how much claims on central government means how much loans to central government institutions has given by country. The financial soundness of country can be calculated by measuring the values of claim on private sector which means gross credit from financial system to individuals, enterprises and nonfinancial public entities The financial soundness can be calculated that how much domestic credit by banking sector has been provided which represents that all credit to various sectors and credit to central government. Another way of realizing the financial soundness is net domestic credit that tells that how much credit the country has given to nonfinancial public sector, private sector and other accounts. To realize the financial soundness of country the way is net foreign assets which means to calculate the value of foreign assets held by the monetary authorities of country and then deduct the foreign liabilities from these assets. To know that how much financially strong a company is we can value the listed domestic companies means domestically incorporated companies listed in stock exchange at the end of year in a country. To realize the countries financial strength market value of shares of domestic companies can be checked Stock traded during years refers to number of shares and value of shares traded can be a good indicator of financial strength indicator of a country. Inflation rate is another factor by measuring which we can determine the countries financial strength. Which represents the percentage increase in the prices of goods Official exchange rate is another indicator that represents the exchange rate determined by national authorities. Deposit interest rate the rate paid by commercial banks to the depositors can also be indicator of financial strength of country

y Lending interest rate the rate at which banks grants loans to its customers is another indicator to determine the financial strength of countries monetary authorities. y Private debt represents the long term debts from bonds which are non-guaranteed and privately placed principal repayments are actual amount of principal paid by the borrower in foreign currency, goods, and services. y Public debts that represents the loan given by government and their agencies and loans from autonomous bodies and principal repayments are actual amount of principal paid by the borrowers. y Bilateral concessional loan these loans represents loans from government and government agencies with an original grant element grant given either in interest rate by granting interest rate below the market rate or by granting the grace period for repayment y Principal repayments on external debts IMF repurchase means total repayments of outstanding drawings form general reserve accounts and long term debt payments in form of foreign currency that are taken for more than one year is checked to know the financial strength of country. y Debt forgiveness refers to change in the debt stock where lender agrees not to collect whole or partial loan amount y Interest arrears refers to the amount of interest due but not yet paid on long term external debts. y Debt stock rescheduled refers to the amount of debt stock outstanding rescheduled is a good indicator of financial soundness of a country. y Interest forgiven is the amount that is due and country writes off that due amount it also predicts a countrys financial strength. y Interest rescheduled the amount of interest due that is rescheduled also depicts the financial strength of country. y Total change in external debt stock the change in debt stock in two consecutive years also predicts the country financial soundness.