Name: Tống Trần Thanh Phương

Class: 11BSM4

ID:295920

Subject: Macroeconomic

Professor: Nguyễn Hữu Khoa

CHINA ECONOMY – UNEMPLOYMENT RATE

After more than 30 years of construction, development and the implementation of economic

reforms in 1978, China's economy has changed rapidly, although there are conflicting changes,

rapid development is main stream and as a result China has created a whole new face in the

economy. It makes experts who experience 30 years surprised. The milestone marking the

important transition of China is in 2001, China joined the WTO - this event is like a door to step

into a colorful rainbow, China was first proposed referring to the concept of "the world's

factory". The labor force is abundant, large territory with many resources that help China in the

production of cheap and diversified goods, from which export is grown.

Foreign trade became an important gateway of China to participate in the process of cooperation

and international economic competition. In 2007, export turnover of China reached 2,170 billion,

up 107 times compared with USD 20.6 billion in 1978. In the period 1978-1993, China always

has in the trade deficit. However, since 1994, China began having a surplus in foreign trade that

make China became the country with the largest foreign currency reserves in the world.

Besides that, the policy of attraction foreign direct investment (FDI) which help China became

the most attractive FDI country among others developing countries. In 1983, FDI of China

reached 916 million, but by 2007 this figure had reached 74.8 billion, up 81 times. At the end of

2007, China has attracted over 770 USD billion from FDI with an average growth rate of 20.1%

annually. The possibilities are endless reasons why China became the world powers as the

current.

In 2009 is quite special: this is the year marks the China surpassed Japan to become the second

largest economy in the world, a position that Japan had held since 40 years. In 1990, Japan's

GDP is 6 times larger than China, but after 20 years, China overtook Japan. China actually has a

spectacular breakthrough.

a) Problem Statement: Research question and objective

Is China for sustainable development? That is the question many people are thinking when

bringing speedy development of China compared with Japan when China officially obtain the

second position in World Economy. This is expected achievements of China. Before that, many

economists, politicians and the media have said that China became the world's number two

economy is just a matter sooner or later

Being the second place in the world is a milestone after decades of efforts of China. Thanks to

reforms and open-door policy, China is not interrupted when the economy goes up gradually

over the next three decades. China surpassed Britain and France in 2005, Germany in 2007 and

recently Japan.

It ranks the second largest economy in the world, but the GDP of China still lags behind

compared to other countries, including Japan. According to World Bank (WB), 2009, the GDP of

China reached more than $ 3,600, ranked 124th worldwide, while the GDP of Japan has reached

more than $ 39,000. Thus, China's GDP was only in Japan in 1973 is approximately $ 3,800

That's not uncommon that China has to have responsibilities for over 1.3 billion people. Even

though China has overcome Japan in the GDP growth rate and attained higher levels of 8% per

year or even exceeding 10% per year, which making it easy to think that everything is improving

the quality trend lives of workers basing on the raising of the GDP growth. But figures from the

General Department of Statistics showed that China's inflation rate increased to the highest level

within 3 years from 2009 to 2011 despite government’s efforts to curb the price or consumer

commodity prices in this country increased 5.5% in May compare to the same period in the

previous year . The prices of rations continue to rise significantly about 11.7% in the last month.

The expensive products and commodities have led to cost life becomes increasingly higher and

hot political issue in China. Rapid growth promotes the country's economic engine, but also

creates high inflation threating the economy. China is actually caught between Growth and

Inflation.

The lesson here is referred as: economic development is better served for the quality of life of

workers? Workers are generally employees who, living off the main income from salary or

monthly income from employment. Talking about the workers, so easy to imagine, we can

assume that workers make up over 70% - 90% of the productive labor force of society, while

their average income is the below the average income of the whole society in the same country.

According to World Salaries, in 2005 statistics show the average monthly income of Chinese

workers is about 1291 yuans or about 142.5 USD per month while according to the International

Labour Organization (ILO) should be 656 USD per month for living in China and about 1480

USD per month income around the world by measuring purchasing power parity (PPP) for an

average life according to ILO standards.

According to CIA, the PPP per capita of China is 8500 USD per person per year, and GDP

reached 5413 USD per person per year in 2011 i.e. has exceeded that recommended by ILO if

the "standard" of the ILO is the normal labor in China is less than the 656 USD per month. The

number 142.5 USD per month by the new statistics and figures 8500 USD per year i.e. almost

700 USD per month say anything?

The answer probably lies in the major statistical sampling and data sampling relative difference.

Data are often obtained mainly from state-owned enterprises (SOEs), an enterprise with foreign

capital investment (FDI), and large private enterprises. Also in the small and medium enterprises

(SMEs) are often not sufficient data. And just as in Vietnam, SMEs generally account for the

amount of labor mainly, the huge national economy, even more than 90% of workers in each

country.

Other data showed that, in China, the average income in SOEs was 37.000 yuan / year while the

average income in the private sector was 20.700 yuan / year, only about 56% compared to SOEs.

As the social security policy did not match the pace of national economic development to

reconcile the interests of social classes so that the diversity between the rich and the poor. The

poor feel abandoned as more and more skyscrapers, the bustling urban nascent but its utility

serving mainly for the few who have money.

  "The world outside China is still wondering whether China is a poor country with many rich

people, or a rich country with many poor people" - Pascal Lamy, Director of the World Trade

Organization.

Knowing that, China is a country with huge population, and offered enough job for most people,

maintaining the unemployment rate around 4.1%, China must accept inflation rather high (as a

rule Kenyes) but high inflation brings a lot of social welfare issues. This is the law of market

economy needed but China also needs to have the macro-economic policies advanced by a state

to regulate the level of the social divide is too big, too fast.

Scope a limitation

http://www.worldsalaries.org/china.shtml

http://data.worldbank.org/indicator/NY.GDP.MKTP.CD

https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html?

countryName=&countryCode=vm&regionCode=??countryCode=vm#vm

https://www.cia.gov/library/publications/the-world-factbook/fields/2004.html?

countryName=&countryCode=vm&regionCode=B?countryCode=vm#vm

https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html

1) Inflation: the overall price situation of the economy increases during a certain period

The overall general upward price movement of goods and services in an economy (often

caused by a increase in the supply of money), usually as measured by the Consumer Price

Index and the Producer Price Index. Over time, as the cost of goods and services increase,

the value of a dollar is going to fall because a person won't be able to purchase as much

with that dollar as he/she previously could. 

- The effects of inflation are very heavy and serious. Inflation consequences to the entire

social and economic life of each country. Inflation makes the product distribution of

income in society and economy through the prices are causing the diversity between the

rich and the poor more serious. Inflation makes this a more profitable while others were

heavily damaged. But ultimately, the burden of inflation fell on the shoulders of workers,

the workers who suffer the consequences of inflation.

- High inflation-especially after the economic crisis in 2008 has affected and impact

significantly on the global economy, but the world has been revived especially the

developing countries.

Read more: http://www.investorwords.com/2452/inflation.html#ixzz239OkzdPH

2)The unemployment rate: The percentage of the total labor force that is unemployed but

actively seeking employment and willing to work. 

Read

more: http://www.investopedia.com/terms/u/unemploymentrate.asp#ixzz239OzlWSM

Unemployed people is working age labor, but likely not have a job and looking for work

- One of the most pernicious consequences of the financial crisis is unemployment.

Currently, unemployment rates are high in many countries around the world.

- Estimating around the world that about 210 million people are unemployed, an increase

of more than 30 million people since the beginning of the Great Depression in 2007, three

quarters of this number belong to the developing economies.

Special mention to the U.S., the center of the Great Depression with unemployment the

highest increase - 7.5 million people since 2007.

Direct consequence is the loss of labor income. But rather the consequences affect the

average life and family life.

3)3) GDP: Gross Domestic Product. In economics, gross domestic product, i.e. the total

domestic product or GDP is the market value of all goods and services produced within a

national territory in certain period( usually in a year)

Definition

GDP: The total market value of all final goods and services produced in a country in a given

year, equal to total consumer, investment and government spending, plus the value of exports,

minus the value of imports. The GDP report is released at 8:30 am EST on the last day of

each quarter and reflects the previous quarter. Growth in GDP is what matters, and the U.S. GDP

growth has historically averaged about 2.5-3% per year but with substantial deviations.

Each initial GDP report will be revised twice before the final figure is settled upon: the

"advance" report is followed by the "preliminary" report about a month later and a final report a

month after that. Significant revisions to the advance number can cause additional ripples

through the markets. The GDP numbers are reported in two forms: current dollar and constant

dollar. Current dollar GDP is calculated using today's dollars and makes comparisons between

time periods difficult because of the effects of inflation. Constant dollar GDP solves this problem

by converting the current information into some standard era dollar, such as 1997 dollars. This

process factors out the effects of inflation and allows easy comparisons between periods. It is

important to differentiate Gross Domestic Product from Gross National Product (GNP). GDP

includes only goods and services produced within the geographic boundaries of the U.S.,

regardless of the producer's nationality. GNP doesn't include goods and services produced

by foreign producers, but do include goods and services produced by U.S. firms operating in

foreign countries.

-Although GDP is widely used to measure achievement of the national economy, but its value is

still argumentative issue. National accounts are only some of the unofficial sectors including

smuggling, illegal activities are not included in GDP.GDP is measured the development of the

economy, one country may have a growth rate of GDP is very high, due to over-exploitation

levels of natural resources. GDP is consider as a measure of the size of the economy, but not

accurate in measuring standard of life. Although having limited in the calculation of GDP,

finding an alternative indicator of GDP is also very difficult.

Read

more: http://www.investorwords.com/2240/Gross_Domestic_Product.html#ixzz239PIzVA6

4) The Gross National Product (GNP) is the value of all the goods and services produced in

an economy, plus the value of the goods and services imported, less the goods and

services exported.

Through the definition of GNP was found that economies have significant involvement of

foreigners and the majority of total income in the country by foreigners and foreign companies

and repatriated, as the case of many less developed countries GNP, GDP will grow much more.

5) GNI: Gross National Income comprises the total value of goods and services produced

within a country (i.e. its Gross Domestic Product), together with its income received from

other countries (notably interest and dividends), less similar payments made to other

countries. For example, if a British-owned company operating in another country sends

some of their incomes (profits) back to UK, UK’s GNI is enhanced. Similarly, a

British production unit of a US company sending profit to the US will affect the British

GNI but will not reduce it since it is not included in the first place.

Vietnam is a success story of the development process. Doi Moi and the political economy

initiated in 1986 has put Vietnam from one of the poorest countries in the world with per capita

income below U.S. $ 100, become countries with low medium income over the last 25 years with

per capita income to U.S. $ 1130 in late 2010. The rate of poverty decreased from 58% in 1993

to 14.5% in 2008, while the social security index also improved significantly. Vietnam have

achieved five out of ten National Development Goals Millennium initially and is progressing

very well to meet again two more goals before 2015.

6) FDI: FDI stands for Foreign Direct Investment, a component of a country's national

financial accounts. Foreign direct investment is investment of foreign assets into

domestic structures, equipment, and organizations. It does not include foreign investment

into the stock markets. Foreign direct investment is thought to be more useful to a

country than investments in the equity of its companies because equity investments are

potentially "hot money" which can leave at the first sign of trouble, whereas FDI is

durable and generally useful whether things go well or badly.

7) Import-export turnover is the aggregate amount collected in the course of export and

import in a given period (month, quarter, year ...)

- Defined in terms of value expressed in currency for import and export goods of a

country or an area within a certain period

- Import-export turnover

-According to the latest statistics of the General Department of Customs in January 2012:

The total export turnover of FDI in January 1/2012 to reach 7.61 billion, up 11.8%

compared to May 1/2011. In particular, exports totaled 3.99 billion, up 14.4%, is

imported 3.63 billion, up 9%.

  Volume of domestic enterprises with import and export turnover was 6.41 billion, down

25.7% compared to May 1/2011. In particular, exports totaled 3.11 billion, down 18.7%,

imports nearly $ 3.3 billion, down 31.2%.

-Clearly, the index of import-export turnover was significantly reduced by the pressure of

inflation and economic crisis, global world.

8) Surplus import-export turnover: means the total income from domestic exports of goods

larger than the total spent on goods imported from abroad.

-With the downturn of global economy today, the situation of import and export turnover has

not positive progress. As the data were taken now import and export turnover dropped

dramatically demonstrated economic situation our country is not revived after the crisis.

PART 2

1) Define the block of currency M1, M2, M3

a) The M1 (currency in a narrow sense): call the money in transactions, including funds used for

actual transactions for the sale of goods include:

- Coins, paper money by the central bank released

- Cost of sign posts on the checking account: This is money bank; money in checking account

can be withdrawn for payment.

M1 definition: One measure of the money supply that includes all coins, currency held by the

public, traveler's checks, checking account balances, NOW accounts, automatic transfer service

accounts, and balances in credit unions.

Read more: http://www.investorwords.com/2908/M1.html#ixzz23FdibJ7k

b) Block M2 (Broad money) called standard monetary asset or currency because they can easily

turn into cash include:

- Block M1.

- Other assets are money very close substitute for money transactions such as savings accounts,

Term deposits...

M2 definition: One measure of the money supply that includes M1, plus savings and small time

deposits, overnight repos at commercial banks, and non-institutional money market accounts. A

key indicator used to forecast inflation Economic.

Read more: http://www.investorwords.com/2909/M2.html#ixzz23Fe5HYma

c) Block M3 include:

- Block M2.

- The type of term deposit large.

- Vouchers debt, money market deposit long-term...

In addition, the final measurement of the total amount of money which in England is called a

block M4 in the U.S. and other developed countries called the block L (Liquidity) includes:

-M3.

- The currency that is more broadly defined types of securities, valuable papers on the likely

transformation of financial markets.

M3 definition: One measure of the money supply that includes M2, plus large time deposits,

repos of maturity greater than one day at commercial banks, and institutional money market

accounts.

Read more: http://www.investorwords.com/2910/M3.html#ixzz23FeJ8xfZ

2) Rule between inflation and unemployment

a) The view of Keynes on unemployment:

Keynes made the premise contrast to the classical economists:

- Wage and price rigidity. According to Keynes because wages are prescribed as long-term

contracts, prices of some goods by the government or other organizations specified exclusive,

but the pull of these organizations are often very large.

- When production resources economic surplus, aggregate demand determines the national

product.

* The meaning of the Keynesian economic model:

The stated premise implies that:

- The economy may reach equilibrium in the production of very low levels, lead to higher

unemployment.

- The total supply line almost horizontal at low output levels, implying that in this case the

stimulus would balance the output level increases, without increasing the overall price level (due

to the home's price and wages). When exceeded potential output, the increase in aggregate

demand can increase output, while the general price level has increased. Resources in an

economy are limited, so every time there always has a maximum output level. So the increase in

aggregate demand does not increase the excess output, only increases the general price level.

- The Keynesian enhance the role of government in managing the macro economy, as aggregate

demand management policies are effective methods to stabilize the macro economy and achieve

economic growth.

* Some limitations of the Keynesian model:

- Do not explain the situation has degraded economy with high inflation medium.

b) Inflation:

- Inflation is the increasing in the general price level of the economy in a certain time.

Inflation definition: The overall general upward price movement of goods and services in an

economy (often caused by an increase in the supply of money), usually as measured by the

Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services

increase, the value of a dollar is going to fall because a person won't be able to purchase as much

with that dollar as he/she previously could.

- The Inflation is impact very deep and serious to the economic. Inflation causes the entire social

and economic of its country. Inflation makes the product distribution and the income are

changing through the prices are causing more serious differentiation between rich and poor.

Inflation makes some groups have more profitable while others have heavily damaged. However,

the workers suffer the most consequences of inflation.

High inflation-especially after the economic depression in 2008 has affected and impact

significantly on the global economy, however, the world has been revived especially for

developing countries.

Read more: http://www.investorwords.com/2452/inflation.html#ixzz239OkzdPH

c) The relationship between inflation and unemployment:

- If inflation caused by supply: there is no tradeoff between inflation and unemployment.

- When inflation caused by demand, there will be a tradeoff between inflation and

unemployment, are often characterized by short-term and long term Phillips curve.

i) Short-term Phillips curve (SP):

In short, between inflation caused by demand and unemployment is inverse relationship: this

means that when aggregate demand increases, output increases, unemployment decreases and the

general price level increases and vice versa, is described by the short-term Phillips curve (SP).

Each of the SP is built corresponding to the natural unemployment rate and the forecast inflation

rate.

When the natural unemployment rate and expected inflation rate changes, the SP will move. If

the expected inflation rate rises, the SP will move up and vice versa.

So when aggregate demand increases, production will increase, decrease unemployment rate,

price increases, the rate of inflation will increase.

Therefore, if inflation in the short term due to demand, there will be a tradeoff between inflation

and unemployment.

When the total output is too low, unemployment high, to increase output and reduce

unemployment, the price we pay is to accept higher inflation rate.

Conversely, when the economy grows too hot, real output is exceeded potential output with high

inflation, to reduce inflation to accept falling output, rising unemployment.

ii) Long-term Phillips curve (LP): This line describes the relationship between inflation and

unemployment in the long term.

- Long-term Phillips curve is vertical at the natural unemployment rate, meaning no long-term

tradeoff between inflation and unemployment. In the long run when aggregate demand increases,

resulting in general price level (P) increases the nominal target as the nominal wage adjustment

also increased along with the rate of general price level. Hence the constant target real, real

wages remained at equilibrium, balancing production remains potential and unemployment at the

natural level.

*** In summary, when inflation is due to demand, in the short term there will be a tradeoff

between unemployment and inflation. But this does not happen in the long term.

PART 3

China's Economy

InflationWeak in remaining currency High price-level Tiền lương tăng

The unemployment ratePoor quality in training labor ForceDisflation

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

M2inflation

The money supply (M2) and inflation chart (%)

"The World Bank pointed out the Chinese inflation from the monetary policy and loose financial

as well as food prices’ fast growth” – World Bank

Inflation stemmed from the issuance of banknotes than the actual needs of the cargo traffic,

causing the devaluation of the currency. Velocity of growth in money supply (M2) is considered

as the basic standards to measure the increase in wealth of the society. From 2000 onwards, the

gap between the amount released and GDP each year widened.

The democracy of China, Mr. Wei Jingsheng (Nguy Kinh Sinh), said in a television interview

that currency in excess and the low exchange rate of Yuan were the root causes of inflation. He

said the Chinese regime has too much money in two decades to stimulate growth, resulting in

inflation in long-term continuously. According to official statistics, the money supply (M2) in

2009 of China was 1.8 times higher than the gross domestic product (GDP), and this gap kept

widening faster. In September, the final money supply for 2010 has reached 2.6 times the total

GDP. (source http://www.theepochtimes.com/n2/content/view/46884/ )

The money supply of China and US from 2005 to 2010 (%)

If we compare the ratio of the money supply in GDP of China with the U.S, we will see that

basic, the ratio of the money supply of the U.S does not change too much during the past 20

years, maintained at 60%, while China’M2 increased from 65% in 1986 to 200% in 2010. This

ratio of Japan and Korea in the long-term growth was approximately 100%. That means from

now on, with the aim of maintaining continuous economic growth, China is difficult to control

M2 scale. This is the basic factor causing long-term inflation in China.

China keeps the Chinese currency weak or lower than the US dollar in order to support exports

and to attract foreign investment, but inflation can be restrained in a short time prescribed by

Chinese Government to their people, business and Chinese exporters to sell dollar to the Chinese

Government for Chinese currency, simultaneously decrease the amount of Chinese currency in

circulation. Due to huge holdings of dollar, the Chinese must convert the U.S dollar into the

foreign currency reserves and boost overseas investment. Moreover, economic growth strategy

based on Chinese exports required rotation US dollar by purchasing stocks in dollars, this

professionally helps the Chinese to keep their currency lower than the price of US dollars.

According to the report of the U.S.-China Economic and Security Review Commission,

although the Chinese currency gained 2.6 percent in 2010, but still lower 20-40% than

the US dollars on the market.

Chinese Government has also implemented some measures to curb inflation such as increasing

interest rates, increasing the required reserve ratio and restrict lending, increasing control real

estate market. However, the measures of the Chinese Government has only limited effects and

temporary, because it does not solve the problem is too much money in circulation. Due to Yuan

too low compared with the actual value, the U.S only prints money is causing huge changes for

the Chinese economy, notably inflation.

The second reason is due to the increase price of assets. If the growth rate of M2 is considered as

basic standard for measuring the increase in the wealth of society, the rises of the capital assets in

China cannot follow the growth rate of M2. For example: In the past 10 years in China, gold rose

350%, fuel rose 200% and maintaining the rise of real estate, the largest capital assets exceeded

the increase of M2. Current house prices in some cities such as Shanghai, Chenzhen, Hangzhou

and Beijing are stronger, ranged from 6-8 times higher than 10 years ago.

According to State Bank of Vietnam, the cause of the housing bubble in China is the Chinese

Government buying dollars to invest abroad, the amount of Yuan in circulation increased but

increased value slowly, the potential risk of inflation. Weak maintaining Yuan has increased

capital inflows, putting pressure on prices and the formation of bubble assets. Inflation risk

increased due to the Government’s program to support the economic recovery has taken total

value in 2009 reached 9,600 billion Yuan, more than double the previous year, but the majority

of funds to be invested the real estate market, causing bubble in real estate and stock.

(

http://www.sbv.gov.vn/wps/portal/!ut/p/c4/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gDFxNLcz

dTEwMLQ1dLA09_X--AYNcAQwNzA_2CbEdFAFjmS9E!/?

WCM_PORTLET=PC_7_0D497F540O8A70IOVKL3FS1GE5_WCM&WCM_GLOBAL_CON

TEXT=/wps/wcm/connect/sbv_vn/sbv_vn/vn.sbv.research/vn.sbv.research.research/

d1bd270044dc27af815dad64eec0ba4a)

Additionally, China has some capital assets such as antiques, jewel or precious artwork has

exceeded the M2, many of that more than 10 times. However, the increase in these capital assets

affect only a small part, and the escalation of prices of key commodities such as housing gasoline

directly push the cost of living up. Meanwhile, the cost of living decided to labor cost, so the

escalation of prices of key commodities such as housing, gasoline has become the second biggest

reason causing inflation in China. (http://www.bbc.co.uk/news/business-13959239)

Human resources and labor poured into the export industry is reducing food production, causing

the prices of food rising. According to the World Bank in 2008, the total labor force in China is

786,794,550.7, which only 36.7% work in the agricultural sector and the rest are industry and

services (source: CIA).

In order to provide enough food for more than 1.3 billion people, the food industry does not

hesitate to use every trick in order to increase food productivity. This makes the issue of food

safety is a concern in the daily lives of consumers. More people tend to grow their own fruits and

vegetables not to pay the exorbitant price. Firstly, the second is to avoid the tragedy of eating

cucumber fruit filling toxic substances.

Besides that, the change in the structure of Chinese labor impacts on inflation in the country.

Unlike predecessors, the new generation of workers in China today has better education, more

ambitious and demanding. They want to get high salary, worth the labor spent, and this is the

cause of the current wave of wage increases in China, but it has also become an important factor

boosting inflation. (source: BBC)

Due to the inflation in China today comes from China’s economic structural change in quality, so

it is not simple to solve by monetary policy. The proper measures to deal with the inflation

problem in China is improving production efficiency and labor value that workers create in their

work, thus improving income of employees truly. History shows that Western countries

successfully handled problems of economic stagnation due to inflation in the last century

because they encourage in innovative equipment in business, improve production efficiency and

labor. This approach is consistent with China today.

At

the end of 2009, the unemployment rate in China at 4.3%. The Government aims to keep the

unemployment rate in urban areas below 4.6% in 2010.

In 2010, the Chinese Government has introduced many solutions in order to boost employment

issues which are including: helpings graduates and labor from the rural areas seeking work

through the facilitate practical and hold the vocational training institute.

There are 12.54 million people participated in the vocational training program organized by the

Government in May 9, 2010, of which 4.71 million are migrant workers. About 390,000

graduates are trained in vocational training schools, while approximately 790,000 people are

receiving lessons about how to starting a business.

"Current situation of migrant workers or graduates have never been worse like this before. Let's

look at the unemployment rate this year of university graduates in Guangdong, a province which

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Series1 3.09999990463

257

3.59999990463

257

4 4.30000019073

488

4.19999980926

514

4.19999980926

514

4.09999990463

258

4 4.1 4.3 4.6

0.250.751.251.752.252.753.253.754.254.75

The unemployment rate of China from 2000 to 2010

has the best economic conditions. Recruit rate for graduates this year does not exceed 8%, which

means that 92% of graduates cannot find jobs" said Mr. Cheng Xiaonong, Editor Journal of

Contemporary China Studies

THE CAUSES OF UNEMPLOYMENT

a) The educational backwardness of China

Recently published by market research organizations in China found that more than one third of

large firms with labor rates change every year up to 30%. Meanwhile, in the U.S. at the rate of

11% was considered to be too high because the cost of hiring and training employees is

expensive.

Three decades, nearly every aspect of Chinese society are undergoing reform, the freedom to

work from anywhere in the country to start a business and the right to marry. However,

education and health are lagging behind.

Large class sizes, teachers teach students to learn by rote. Students often focus on single subjects

without training in soft skills communication and work. That makes them unable to adapt with

the global business environment which is requires flexible thinking and quick reaction.

Currently, the cheap labor of China is one of the factors that attracting foreign investment. But

China certainly does not want to be just centers of the world of cheap good forever. The young

workers do not want to do the job with an extremely low wages and hard work in the industrial

park.

China can completely solve the problem of human resources if the government reforms the

education system by adopting new ways of thinking, flexible, and more innovative.

b) The rate of annual inflation increases:

The relationship between inflation and unemployment is always a consideration and trade-policy

macroeconomic operating.

Price increases, high interest rates is a nightmare for borrowers, but at the same time is a dream

come true for other groups such as the owners of the property, the lender.

Moreover, the inflation rate always higher than 8% over the years in China, it is not difficult to

understand why the movement for higher wages in China happens animated. And the result is

the minimum wage in China has increased to 21.7%1 in 2011.

(Source:http://www.bbc.co.uk/news/business-15456509) This means that labor costs rise, but not

as cheap as before. The good side of this is that increasing the minimum wage in China is

commensurate with efforts to increase purchasing power and domestic consumption, which

means that will help reduce inflation in the country.

However, the advantage of cheap labor in China is not an advantage anymore. This will force

foreign companies to seek new markets or reform or apply new production method which are use

less labor power. Typically the Adidas Company factory closed only in China, followed by

Japan's VANCL CEO Tran Nien Nhat also revealed that starting in 2011, the product of VANCL

has begun to shift to the factory located in Bangladesh and some other countries, this is also a

step to test foreign markets clothes, the production cost can be reduced to 3 times.

1

The title "The workshop of the world" that have long been worn for China may be removed, in

the process of increasing the cost of labor has lost its advantage based on low labor costs so they

are no longer attract investments of investors.

The rapid development of China’s economic deviate from the framework of acceptable social

justice, led to the rapid increase in the percentage of poor and unemployed people, while

bringing huge benefits for state companies and monopolies.

Unemployment is also often linked to unstable social. Commerce Minister Chen Demin said that

the slowdown in economic growth will "create opportunities for increased social unrest."

Obviously, as long as the price system does not perform the task to signal the reasonable

expectations of the business and the employees, it is difficult to choose the optimal operating

policy, whether in the short term.

HOW THE INFLATION AND UNEMPLOYMENT AFFECT THE ECONOMY?

The main impact of inflation is on the distribution arising from the different types of assets and

liabilities of the people. When inflation occurs, the property owners, borrower is beneficial

because the price of the asset generally increases, but the value of money is reduced. Those

employees, depositor and the lender are damaged.

There has been an inverse relation between inflation and unemployment: as inflation increases,

unemployment fell, and vice versa when unemployment decreased, inflation increased.

Economists A.W. Phillips gave “Exchange between inflation and employment Theory”,

according to that theory a country can purchase a lower level of unemployment if willing to pay

a higher rate of inflation.

However, research based on empirical evidence does not fully support the hypothesis of Phillips.

After World War II, many countries fall into the situation of high unemployment and high

inflation. High unemployment is a signal of a stagnant economy or recession. That is when the

total amount of production reduce, reducing demand for goods, limited production business.

Clearly, the phenomenon has stagnated; inflation has not supported this hypothesis about the

relationship of high inflation, low unemployment, and vice versa.

No matter how well the consumer price index and inflation and lengthen will create negative

effects on the entire economy. The main effects include: increased prices will increase the cost of

production, affecting the competitiveness of the enterprises and the entire economy. High

inflation reduces the value of money in the country. As prices in the future are difficult to

predict, the spending plan and savings reasonably become more difficult. People are increasingly

worried about their future purchasing power will reduce and their standards of living also get

worse. High inflation encourages investment speculative profits rather than invest in productive

activities (for example, when there is inflation, if the bank not increasing bank deposit interest

rates, people will not deposit their money to the bank but they will invest in land speculation and

the land price will rise ...). High inflation adversely affects to the people whose income has not

kept up with the rise in prices, especially those living on fixed incomes such as pensioners or

employees. Their welfare and standard of living would be reduced.

Unemployment affects individuals who are unemployed first. Create a crisis mentality and spirit

in a long-term. Unemployed shoved people into place of alcoholism, drugs, prostitution and

other crimes. Each individual is a member of the society, if the unemployment extension will

undermine a society both physically and mentally.

For a country, the higher the unemployment rate leads to a decrease in purchasing power, thus

affecting the overall economic development. The cost of welfare, social welfare will increase. In

many developing countries, they have very strict regulations and social assistance rate is quite

large then all of that is not a small expense to the nation. And finally, unemployment in society is

an important indicator assessing the sustainable development of a country.