Consumption, investment, and GDP in China Along with other emerging market economies, China has been considered as the main driver of global growth especially during the global financial crisis. Since 1990, the Chinese economy has been able to sustain the highest levels of GDP growth, rendering it one of the largest economies in the world, second to USA. But why has the Chinese economy started to show slower GDP growth after the global financial crisis? To answer this question, you need to examine (1) the changes in the components of GDP over this period and (2) the movements of investment and consumption in China during the last two or three decades and its relative slowdown since the global financial crisis. Go to the Web site of the Bureau of Economic Analysis (www.stats.gov.cn). Find the annual National Accounts Tables and examine the Composition of Gross Domestic Product, which shows the percentage contribution of the components of GDP to the overall growth.

a. Track the change in GDP components since 1990. Which component changed most? How can these changes explain the pattern of changes in the Chinese economy? How has this pattern led to higher GDP growth from 1990 till 2010?

b. Why has this trend been reversed since the global financial crisis? To answer this question, you need to examine the levels of Chinese exports. Also, examine the exchange rate of the Yuan in order to study the policies adopted by the Chinese government to boost its exports. Explain whether these policies have been successful or unsuccessful.

c. Plot the changes in investment (gross capital formation) and final consumption expenditure since 1990. Which variable had the bigger percentage change since 1990?

d. Which region in China contributes most to investment expenditure, final consumption expenditure, and GDP growth? How can you explain these changes? Research the factors that have enabled each of these regions to achieve these levels of consumption and investment.