BACKGROUND

Despite being the world’s second largest economy and an upper-middle income country, China’s
per capita income is only about 25% of high-income countries. China reformed its economy in
1978, and its gross domestic product (GDP) growth rate has been 10% a year averaged. China
has eliminated poverty among more than 850 million people. More or less 373 million people of
China are living below the poverty line. Income imbalances, human capital and labor
productivity are the major issues China is facing today. Apart from that, China seems to be the
main hub of developmental issues. China emits the most greenhouse gases in the world, and its
air and water pollution affects not only its economic growth but other countries’ as well. The
reasons behind China’s high growth rate are exports and resource-intensive manufacturing.

CHINA BUSINESS CYCLE

Since China reformed its GDP in 1978, following graph and table are displaying the annual
economic growth based on net material product (NMP) since 1952 prices. In this graph and table
NMP is showing the aggregate output in the country. The economic growth of 1955 to 1994
appears to be large amplitude of short-term fluctuations. The growth rate is calculated and
divided into two sub-periods, (1955 to 1978 and 1979 to 1993) before and after economic
reforms. The first sub-period (1955 to 1978) appears to be much larger amplitude (11.7) than the
second one (1979 to 1993) period (3.8) only.
The reasons for such large amplitude before 1978 are: The collapse of Great Leap Forward at the
end of 1950s and the Cultural Revolution (1967 to 1968) in the climatic phase.
After the formation of 1979, the growth rate was relatively high and stable. During the first sub-
period of growth rate (1955 to 1978) economy rose about 5.7% and in the second period (1979 to
1993) it rose about 9.3%.
During the first period of business cycle (1955 to 1978) there were many ups and downs in the
economic growth in the short-run. Chinese economy actually accelerated from 1979, and long-
term trend rate went from 6 percent to 9 approx.
 BUSINESS CYCLE OF CHINA

Business Recession Trough Recovery Peak

Cycle
First Period 1956-57, 1960- 1957, 1962, 1957-59, 1962- 1956, 1959,
(1955-1978) 62, 1967-68, 1968, 1972, 66, 1968-71, 1966, 1971,
1971-72, 1973- 1974, 1976. 1972-73, 1974- 1973, 1975,
74, 1975-76. 75, 1976-79. 1979.
(6 years)
(13 years) (20 years) (7 years)
Second Period 1979-81, 1988- 1981, 1989. 1981-88, 1989- 1979, 1988,
(1979-1994) 89. 94. 1994.
(2 years)
(5 years) (14 years) (3 years)

The above table shows China’s business cycle trends for both the periods, before formation of
GDP and after formation of GDP.
In the first period, before formation, we can clearly see that there were many ups and downs in
the economy and less stability. That is why we can see the big numbers in recession, trough,
recovery and peak.
While in the second period, after formation, there was stability and rapid growth in the economy.
For that particular reason we can see less numbers than first period’s economy in the recession,
trough, recovery and peak.