China's Macro-Economy (PDF)

# Learning ## China's Macro-Economy ### China's Economic Development ### China's Three Strata of Industries ## China's Major Industrial Activities Since the reform in 1978, China's economy has been developing rapidly. As the Chinese economy and the Hong Kong economy are closely related, we need to...

# Learning ## China's Macro-Economy ### China's Economic Development ### China's Three Strata of Industries ## China's Major Industrial Activities Since the reform in 1978, China's economy has been developing rapidly. As the Chinese economy and the Hong Kong economy are closely related, we need to understand China's macro-economic situation. This module explores China's economic development and its three strata of industries. Moreover, the importance of China's industrial sector is discussed in the extended part. ### Key Point 1: China's Macro-Economy #### China's Economic Development We can use **gross domestic product** (GDP), **GDP per capita**, and the value of total exports of goods to measure a country's economic development. We have learned about GDP in Module 13 Economic Performance of Hong Kong. It is the production value of a country during a period of time. In this module, let us learn another two indicators: GDP per capita and the production value of exports of goods. **GDP per capita is the average production value of people in a country**. It can reflect their income level. The larger the value, the higher the income level of people, and vice versa. The formula for calculation is: $GDP \ per \ capita = \frac{GDP}{Population \ size}$ The average production value of ppl. GDP = a country/place/region/cities The **value of total exports of goods** is the total value of goods exported by a country or a region. It is a part of GDP and can reflect the export scale of the region. The larger its value, the larger the export scale is. **Other indicators for measuring economic development** The GDP mentioned above refers to nominal GDP. It is the total value of production measured by the market prices of goods and is affected by a change in the price level. Therefore a larger nominal GDP in a certain year may be due to a higher price level only. Total product (in terms of quantity) may not increase. Therefore countries calculate real GDP at the same time. It is the total value of production calculated by the price level of a certain year. In this way, a higher real GDP must be caused by a larger total product. This helps countries compare their economic performance over different years more accurately. | Year | Nominal GDP (RMB billion) | Real GDP (RMB billion) | |---|---|---| | 2009 | 34 090.3 | 28 484.5 | | 2010 | 40 151.3 | 31 446.9 | | 2011 | 47 156.4 | 34 340.0 | | 2012 | 51 894.2 | 36 984.2 | China's nominal and real GDPs (in terms of prices in 2005) (2009 to 2012) The **human development index (HDI)** compiled by the United Nations can also be used to evaluate a country's socio-economic development. It measures socio-economic development in terms of people's health, education and economic performance. Hence, it is a better indicator. The value of this index ranges between 0 and 1. The higher the value, the better the socio-economic development, and vice versa. | Year | HDI | |---|---| | 1995 | 0.541 | | 2000 | 0.588 | | 2005 | 0.633 | | 2012 | 0.699 | China's HDI (1995, 2000, 2005 and 2012) The above sets of data show that China's real GDP and HDI are increasing. This reflects that its socio-economic development has improved. ## Module 15: China's Three Strata of Industries ### Meanings of Three Strata of Industries Production in the mainland can be divided into primary industry, secondary industry, and tertiary industry: **a) Primary industry** Primary industry generally refers to production activities that involve direct extraction of natural resources. In the mainland, primary industry includes agriculture, forestry, animal husbandry, and fishery (farming). Forestry is classified as primary industry **b) Secondary industry** Secondary industry refers to production activities that turn resources into semi-finished or finished goods. It is classified into the industrial sector and the construction sector. Of these, industrial sector includes manufacturing, and production and supply of electricity, gas and water. In the mainland, secondary industry also includes mining. Manufacturing is classified as secondary industry **c) Tertiary industry** Tertiary industry refers to industries other than primary and secondary industries. It is usually called the service industry. Examples include retail, financial, and real estate industries. Financial industry is classified as tertiary industry ### Interrelationship Between the Three Strata of Industries In the production process, primary, secondary and tertiary industries are interdependent. Each stratum depends on the goods and services provided by the other two strata. Garment production will be used as an example to illustrate this interrelationship: - **Primary industry:** Cotton planting - provide tools for planting cotton - provide cotton - provide transport and sales channels - **Secondary industry:** Spinning, weaving, and knitting - provide cotton - provide garments - provide transport and sales channels - **Tertiary industry:** Transport and sale - provide garments - provide transport and sales channels ### Key Point 2: China's Major Industrial Activities The industrial sector contributes a lot to the Chinese economy. It can be classified into heavy industry and light industry. **Light industry** refers to industry that provides consumer goods (i.e. goods for final consumption) for daily life and hand tools. Examples include food, paper, and home appliance industries. **Heavy industry** refers to industry that provides production materials (i.e. the resources and tools used during production). Examples include the iron and steel industry, and petrochemical industry. It mainly produces producer goods (i.e. goods used for producing or assisting to produce other goods). The Chinese economy is mainly supported by its industrial sector.