I finished my MSc in Economics at the University of Essex and I got a Merit-class MSc degree with a dissertation that analyses the gender differences in enrolment in the Mexican Pension System. For my dissertation I used large data bases from a household survey and I employed the Blinder Oaxaca non -linear decomposition model. Before that I worked in research and policy analysis related to the retirement saving system in Latin America and I wrote my Bachelor's thesis on this very policy oriented topic. It was awarded the first place in an international competition for Research on Social Security (Inter-American Award for Research on Social Security, October 2005).

Sample

The key macroeconomic variables of China

Introduction
As we know Macroeconomics, along with Microeconomics, is part of economics science that studies the performance of the economy as a whole.

In order to have a general idea of the macroeconomic performance of China, it is necessary to review some aggregate indicators such as the inflation rate (i.e. Consumer Product Index), the Gross Domestic Product (GDP) growth the unemployment rate and the balance of payment over the last three years.

As other major nations, the Chinese government haⁱs used the data to face up the international financial crisis that is harming the World. The tools that the government is using are the fiscal and monetary policies (i.e. the Central Bank cut the interest rate to encourage the aggregate demand. An increase of the aggregate demand will increase, or at least remain, the economic growth through a rise in the consumption).

Inflation Rate
In economics, inflation rate measures the increase of the general price level of goods and services in an economy over a period of time. The most well known price index is the Consumer Price index (CPI) which is “the measure of the average price of consumer goods and services purchased by households”, the Gross Domestic Product (GDP) deflator, which is a measure of the variation in prices of all final goods and services produced in a nation in a period of time and the Producer Price Index (PPI), which measures the “variagtion in prices received by domestic producers for their outputⁱⁱ”

Graph 1 presents the annual variation in the Consumer Price Index for China from January to December 2008. As we can see, the inflation rate reached its higher point in March, 8.7 percent, and decreased by the middle end of the year to its lowest point of 1 percent in November 2008.

Source: National Bureau of Statistics.

Graph 2, shows China inflation rate, by month, for the last three years. As we can see in the graph the lower rate of inflation was in 2006 when the Chinese government tried to stimulate economic growth in the country .

Source: TradingEconomics.com, Bloomberg

The most recent inflation rate is expected to be not too high since the demand for exports has fallen and the economy has decreased too.

Graph 2 also shows that 2008 presented the highest inflation rate in May 2008 (7.7 percent) and few months later the lowest inflation rate (1.2 percent) in three years. It is also relevant to note, in chart 2, that the inflation rate in 2006 was very stumpy (the average inflation rate for China was 1.47 percent) and that in 2007 the inflation rate was high by the end of the year but low during the firs months of the year (the average inflation rate of 2007 was 4.77 percent).

Chinese authorities indicated that the Consumer Price Index increased during the firs months of 2008 for the natural factors such as the snow disaster that harmed most of the country (for that reason, it will not be surprising that in February of this year China has high inflation rates from the snow storms).

As the data shows, the price of energy, mineral products, and other raw materials have been increased during the last months. The increase in the price of those products is not good for the economy because with high prices and a weak economy, the United States and other nations will trade less with China.

It is also known that high rates of inflation can be attributed to the increase of the supply of money and that low rates of inflation have been attributed to changes in real demand of goods and services. For the mentioned reason, the main task of the monetary authorities such as the Central Banks is to keep the inflation rate as low and stable as possible.

China’s Central Bank decided to use some tools such as the interest rates and foreign exchange policy to encourage the financial crisis. The main task of Chinese authorities is to increase consumption and reduce saves through mechanisms such as reductions in the interest rates.China Interest Rate

Fortunately, China has its own real estate sector and its financial markets are isolated from the disorder that affects almost all the World: nevertheless, the global financial crisis has decreased the aggregate demand in many nations and the housing prices in China are starting to be affected by the global financial crisis.

For that reason, since the financial crisis started in the United States and expanded around the World, The People's Bank of China, which is the Central Bank of the People's Republic of China, has been reducing the interest rate to bear the economic situation.

As we can see in graph 3 and graph 4, the interest rate in China had been rising from 2006 to the first months of 2008, but from August to December 2008 the interest rate dropped to reach 5.31% (the lowest rate in the year).

Source: The People’s Bank of China

Source: TradingEconomics.com, Bloomberg

China Gross Domestic Product (GDP) Growth Rate
Since the Chinese free market reforms in the late 1970s, the Gross Domestic Product of China increased approximately 10 percent per year. For that reason the economy became one of the largest economies in the Word (i.e. in 2007 the economy’s GDP was over 10 trillion – measure on a PPP basis); however, we still do not know if the constant economy growth in China will remain. The current financial crisis, according to some experts on the field, is also damaging the economic growth of the nation.

As we can see in chart 5, China’s Gross Domestic Product growth rate has fallen during the last months, as other major economies did. In the first month of 2009, Chinese economy only increased 6.8 percent (the lowest expansion in the last three years). The data also shows that China’s Gross Domestic Product growth fallen from 10.1 percent in July 2008 to 9 per cent in December 2008.

One of the main causes of the slowdown of the Chinese economy has been attributed to the reduction of exports. Li Xiaochao of China's National Bureau of Statistics indicated that the slowdown of the international economy has a negative impact in the Chinese trade balance.

The forecast of the economy is not as positive as we were expecting. The decrease in the demand of raw materials indicates that the economy of China will not rise as before. For instance, in 2007, Chinese net exports were 2.4 percent of the total Gross Domestic Product. In 2008, total exports represent only 1.2 percent.

Source: National Bureau of Statistics

Source: National Bureau of Statistics

China Unemployment Rate
Labour force refers to the number of people in the working age (normally over 14 to 16 years old and younger than 60 years old) who supply work or are looking for a job. In 2005, there were more than 3 billion people in the labour force around the World. The rest of the population in the working ages, who are looking for job and can not find it, are counted in the unemployed rate. In other words:

The variation in the net labour force is due to changes in the population growth, entrants, retired people and foreign people in the labour force.

LF = labor force = U + E

Where

LF= labor force; U= unemployed and E= employed

Unemployment rate is a stock variable, which means that unemployment rate reflects the number of unemployed workers in a point in time and not during a period of time (employment level, total labor force, and other variables that are measure in periods of time and not in a point in time are known as stock variables).

Generally speaking, the unemployment rate includes those workers who are looking for a job and those who recently lose their works and are seeking for a new occupation.

There are many types of unemployment. Some of them are:

Frictional unemployment
This type of unemployment reflects the time that takes to find a new job after quit another one. The number of people counted under this category also include fresh graduates seeking for their first job. The internet and job agencies reduce the imperfect information in the job market and because of that decreace the frictional unemployment.

Structural unemployment
Structural unemployment is originated from the difference that exists between the supply and the demand of jobs. It occurs when the geographical location, skills, technological change and many other factors like seasons do not mach with the demand.

Natural rate of unemployment
The natural rate of unemployment is the sum of frictional unemployment plus structural unemployment.

In China, the global financial crisis has also affected the unemployment rate: however, as we can see in graph 7, it is not as high as in the levels of 2006.

Chinese leaders have admitted that as other nations around the World, Chinese factories are closing. For that reason, some experts predict that the unemployment rate will increase 6 percent (reaching 10 percent in 2009).

For example, the industry of toys in China is in troubles. During the last weeks, the industry decided to cut more than 6,000 jobs since a large toy factory called “Smart Union” closed. Smart Union decided to close because the demand of toys from the United States decreased.

For the mentioned problems, Chinese governators are trying to support the workers of rural areas and to rise the incomes of farmers, but the help seems to be too little.

Balance of Payments (BOP)
The balance of payments (BOP) refers to the flow of money paid between one nation and other economies. In other words, is all the international transactions for a specific country in a period of time.

The Balance of Payments is the sum of balance of trade (net exports of goods and services minus net imports of goods and services over a period of time), the sum of financial capital and the sum of financial transfers. That means that current account and capital account are their main components.

Since the Balance of Payments take into account the debits of foreigners and credits of foreigners. For that reason, it became one of the most important indicators to know the international situation of a nation. The unit of measure is one currecy, and it employs the exchange rate of the day for evaluate the foreign assets and flows.

In 2007, Chinese economy had a great performance. The economy of China growth very fast and the balance of payments was also dooing well. The current account, for ecample, was over 370 billion U.S dollars (more than 45 percent compared with 2006). During the same period of time, the the capital and financial account also had a surplus which reached more than 70 billion U.S. dollars (it is important to notice than in 2006, the amount was only 6.7 billion U.S. dollars).

In 2008, the balance of payment for China had a surplus (18 percent in the first months of of 2008) that has been largerly contributed to high asset prices (private shares). The positive balance in the nation capital and financial account was over 71 billion U.S. dollars and the foreign exchange reserves were almost 2.o trillion U.S. dollars in the first half of 2008.

From the international point of view, in 2009, we do not have certainty in the balance of payment for China, since the world economy has been impacted by the financial crisis in the United States.

Balance of Trade
Balance of Trade is the difference between exports and imports in an economy over a period of time. The country has a surplus when the exports are higher than the imports and a nation has a deficit when the imports are higher than the exports.

As we know exports have been very important for supporting the Chinese economy during the present global financial crisis. According to the data, exports constitute almost 40 percent of the Chinese Gross Domestic Product.

The main Chinese products exported are related with high technology. For example, office machines, telecommunications equipment, electrical machinery and clothing.

The major countries that trade with China are the United States, the European Union, Hong Kong and Japan.

Source: Customs General Administration

Source: Customs General Administration

As we mentioned, in economics, Current Account is one of the two main components of the Balance of Payments. Generally speaking, Current Account refers to the balance of trade (exports of goods and services minus imports of goods and services) and ignors the financial transfers and investments.

The current account is negative (has a deficit) when the imports are larger than exports and is positive (has a surplus) when the exports are larger than imports.

Source: National Bureau of Statistics.

As we saw, it is necessary that the Chinese government acts and create macro-economic policies to have a good environment for international trade.

Conclusions
Once we have observed the data it is possible to undestand the structure and performance, in the short and long run, of the Chinese economy. According to the observed data, China’s economic growth is likely to decrease and the unemployment rate to increase; however, it seems that China is strong enough to face up the global crisis; however, it needs to get prepare for a “worst case scenario”.

It is known that around the World, many nations have been affected by the global financial crisis. Most of these countries are trying to protect their economy through protectionism to avoid that more factories close and more workers lose their jobs. For that reason, countries like the United States may reduce the imports from China.

According to the International Monetary Found, the United States will slow down and it may have a recession. Also developing economies, like Mexico, will have a slow economic growth. This international situation may affect the performance of the Chinese economy. It is important to mention that as the major economies in the world, The People's Bank of China, which is the Central Bank of China, is trying to keep inflation within a reasonable range. If China can control the price of raw materials, food and energy, its exports will be save of becoming more expensive.

The tool to reach inflation under control is through adjustments in the interest rates. Interest rates, as Aggregate Demand and Aggregate Supply model indicate affects consumption and investment, encourage consumption and saving becomes less attractive.

Also, more measures are going to be taken to face up the difficult times. For example, it is expected that China will add an export tax, that real estate will be helped and that more money will be allocated to welfare and construction.

References
Asprem, M. (1989), ‘‘Stock prices, asset portfolios and macroeconomic variables in ten European.

countries’’, Journal of Banking and Finance, Vol. 13, pp. 589-612.

Blanchard, Olivier (2000), Macroeconomics, Prentice Hall, ISBN 013013306X.

Blaug, Mark (1985). Economic theory in retrospect. Cambridge, UK: Cambridge University Press. ISBN 0-521-31644-8.

Chen, N.F. (1991), ‘‘Financial investment opportunities and the macroeconomy’’, Journal of Finance, Vol. 46, pp. 529-54.

Friedman, Milton (1953), Essays in Positive Economics, London: University of Chicago Press, ISBN 0-226-26403-3.

Frisch, Ragnar (1933). Propagation Problems and Impulse Problems in Dynamic Economics. London: Allen & Unwin.

Gärtner, Manfred (2006), Macroeconomics, Pearson Education Limited, ISBN 978-0-273-70460-7.

Heijdra, B. J.; Ploeg, F. van der (2002), Foundations of Modern Macroeconomics, Oxford University Press, ISBN 0-19-877617-9.

Mishkin, Frederic S. (2004), The Economics of Money, Banking, and Financial Markets, Boston: Addison-Wesley, p. 517.

Mishkin, Frederic S. (2004). The Economics of Money, Banking, and Financial Markets. Boston: Addison-Wesley. p. 517.

Snowdon, Brian; Vane, Howard R. (2005), Modern Macroeconomics: Its Origins, Development And Current State, Edward Elgar Publishing, ISBN 1-84376-394-X.

Schwert, G.W. (1990), ‘‘Stock returns and real activity: a century of evidence’’, Journal of Finance, Vol. 45, pp. 1237-57.

Thorbeke, W. (1997), “On stock market returns and monetary policy’’, Journal of Finance, Vol. 52, No. 2, pp. 635-53.

Web-pages
TradingEconomics.com, Bloomberg

www.worldbank.org

National Bureau of Statistics