Economics (AS & A Level) · Oct / Nov 2021 · Paper 23 · Question 1

China’s uncertain economic prospects Fig. 1.1 below shows growth in real output by components of aggregate demand in China from 2010 to 2017. consumption expenditure* investment expenditure* net exports real output growth annual percentage (%) change –5 –2.5 0 2.5 5 7.5 10 12.5 15 17.5 2010 2011 2012 2013 2014 2015 2016 2017 * Consumption expenditure and investment expenditure include both public sector and private sector expenditure, so government expenditure is not shown separately. Fig. 1.1 Table 1.1 below shows the annual percentage (%) change in new car sales in China from 2010 to 2017. Table 1.1 Year % change 2010 33.2 2011 5.2 2012 7.1 2013 15.7 2014 9.9 2015 7.6 2016 14.9 2017 2.4 Source: knoema.com, October 2019 3 In 2018, real output in China’s economy grew by 6.6%, its lowest figure this century (see Fig. 1.1). Many economists believe that growth in China’s real output will continue to be around this level over the next few years. In looking to the future, the Chinese government has sought to restructure its economy. This has resulted in an increased contribution from domestic consumption, with less reliance on large-scale manufacturing in favour of quality manufacturing. For Chinese consumers, buying a house is the main priority, followed by purchasing a new car. Table 1.1 shows the annual rate of change in new car sales from 2010 to 2017. China’s plans for maintaining its growth in real output at a rate of around 6.6% are threatened by ongoing tensions over trade with the United States (US). These tensions provide a real threat to China meeting even its most pessimistic growth targets for real output. Various studies have estimated the effects of a protectionist trade war with the US on China’s economy. These estimates are all negative and range from –0.6% to –1.4% of real output. Source: China Daily, 19 February 2019

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