Macro economic -Chinese economic - Unemployment rate

1. 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.

2. 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

3. 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

4. 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

5. (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

6. 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.

7. 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

8. 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

9. 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.

10. 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%.

11. 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

12. 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.

13. 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:

14. - 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.

15. 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):

16. 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

17. 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
Inflation
• Weak in remaining
currency
• High price-level
• Tiền lương tăng
The unemployment
rate
• Poor quality in training
labor Force
• Disflation

19. 30.00
25.00
20.00
15.00
10.00
5.00
0.00
-5.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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.
M2
inflation

20. 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

21. 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.

22. 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_0D497F540O8A70IOVKL3FS
1GE5_WCM&WCM_GLOBAL_CONTEXT=/wps/wcm/connect/sbv_vn/sbv_vn/vn.sbv.researc
h/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

23. 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

24. because they encourage in innovative equipment in business, improve production efficiency and
labor. This approach is consistent with China today.
The unemployment rate of China from 2000 to
2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
5.00
4.00
3.00
2.00
1.00
0.00
Series1 3.10 3.60 4.00 4.30 4.20 4.20 4.10 4.00 4.10 4.30 4.60
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.

25. "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
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

26. 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
1

27. 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.
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”,

28. 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

29. 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.