China’s National Economy from 2005-2014

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3. Labour Market Analysis

3.1. Unemployment Rates Analysis

According to figures released by State Statistic Bureau of China, the Registered Unemployment Rates in Urban Area in China stabilized between 4.0% and 4.25 between 2005 and 2014. But it is also worth noting that unemployment rate released by the Chinese government registered only people in the urban area, so there is certain deviation from the real unemployment rate (State Statistics Bureau, 2015).

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Figure 4. China’ unemployment rates from 2005 to 2014. Data source: (State Statistics Bureau, 2015)

3.2. Definition of Unemployment Rates

Unemployment rates refer to the no working labor forces that satisfy all the employment conditions in a given period, intending to measure the idle labor capacity and reflecting the unemployment status of a country or a region. The monthly change of the unemployment data can reflect the economic development to certain degree and there is a reverse corresponding relationship between economic growth rate and unemployment rate (Rothman, 1998).

3.3. Types of Unemployment Analysis

The reasons of the unemployment issue in China are complicated and multifaceted. The following analysis is carried out from the supply and demand of the labor market (Feng et al., 2015).

(1) Insufficient demand in the labor market with not enough jobs provided

As China's GDP grows quickly, China's employment growth rate has been at lower levels and presents a downward trend, reflecting that the facilitating function of China's economic growth to the employment growth is declining with a lack of employment elasticity. Data shows that in the 1980s, when GDP grew by 1%, 2.4 million jobs were created. However, since the 1990s, only 0.7 million jobs were created. Still, the current situation is not optimistic.

(2) Sufficient supply of the labor market with relatively lower quality

China is a populous country with large population base. Due to the decision-making errors in terms of its population policy, the population growth rate is much higher than the speed of its economic development. The working-age population is large, so the labor resources are abundant. The inflation of a large number of working-age population bring huge source of unemployment for present and the future. China's vast labor force mainly comes from the following three aspects: 1, with the rural population moving to cities, the number of migrant workers keeps increasing; 2, laid-off workers are difficult to be re-employed; 3, graduates from college becomes unemployed after they graduate.

3.4. Government’s Measures

In response to growing unemployment, China has taken the following measures (Liu, 2013):

(1) Develop the economy and provide more employment opportunities

(2) Speed up the adjustment of industrial structure and actively develop the tertiary industry

(3) Support the development of small and medium-sized enterprises and develop the economy with a variety of ownership

4. Price Level Analysis

4.1. Inflation Rate Analysis

Figure 4 shows China’ inflation rate from 2006 to 2016. In this decade, the inflation rate reached the highest of 8.3% in 2008, and the lowest of 1.7% in 2009. Since 2012, the inflation rate stabilized at around 2% (Trading Economics, 2016).

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Figure 4. China’ inflation rate from 2006 to 2016. Data source: (Trading Economics, 2016)

4.2. Definition of Inflation Rate

Inflation is generally refers to: the number of currency in circulation exceeds the actual need of currency in economy under the credit currency system, thus leading to currency devaluation and comprehensive and continuous rising price; in other words is that the general price level of a given economy continues to increase in a given period, resulting in a sustained drop in purchasing power of the currency. Inflation rate is the ratio between the over-issued currency and the actual need of money, used to reflect the degree of inflation and currency depreciation (Fama, & Schwert, 1977).

4.3. The Causes of Inflation

According to Osorio, C., & Unsal (2013), the causes of China’ inflation can be concluded into the following factors:

(1) Domestic factors

China's inflation pressure is rooted in the pursuit of the development of the economic growth mode, with special hope to solve various problems and contradictions in the development simply by rapid economic growth, which shows obvious "growth dependence" and "investment hunger". The high investment growth required by this mode can lead to resource tension, overheating economy, thus more easily triggering the demand-pull type inflation. In addition, in order to achieve economic growth targets, a lot of liquidity will be added to the economy, which exacerbates the inflationary pressure.

(2) Foreign factors

Apart from the domestic policies formulated for inflationary pressure of economic development, foreign economic environment change is one of the causes of inflation, which mainly includes: import-driven inflation pressure; the increasing foreign currency leading to the passive issue of the monetary base; the expected appreciation of the RMB.

(3) Policy factors

After the outbreak of the global economic crisis in 2008, the central government actively adopted a loose monetary and fiscal policy and launched a 4000 billion fiscal stimulus plan in order to maintain GDP growth. All of these can be attributed to the government's preference for the pursuit of GDP growth, and this preference for governance policies in the pursuit of economic growth planted hidden dangers for inflation.

4.4. Government’s Measures

The Chinese government mainly adopted the following measures to deal with inflation