This document is an assignment analyzing China's economy based on various economic indicators. It discusses China's current strong but slowing economic growth and healthy overall economic state. Key indicators like GDP, GDP growth, inflation and investment rates are examined. The assignment recommends monitoring inflation, current accounts, investment and foreign investment to evaluate risks and opportunities for expanding business in China. China's economy is expanding but may be reaching its peak, so the company needs to prepare for a potential contraction.

1. Assignment 1
Global Economic Analysis:
China’s Economy
By
Muath A. Bin Hussain
Jack Welch Management Institute
Dr. Natalie Walker
JWI 515, Managerial Economics
July 31, 2016

2. JWI515: Managerial Economics. Assignment 1 1
Abstract
The purposes of this paper is to analyze China’s economy and major economic indicators. The
analysis is based on different resources that provide economic data and information such as
tradingeconomics, world bank, and central banks. This paper discusses the economic state of
China and the current business cycle. In addition, recommendations are provided to monitor
certain economic indicators. This assignment is a required paper to reflect the student's
understanding of the course material of JWI 515 (Managerial Economics).

3. JWI515: Managerial Economics. Assignment 1 2
Introduction
Based on the world bank, China is the second largest economy and is playing an important
role in the global economy. However, it is important to consider that China is still a
developing country and its market reforms are incomplete. (World Bank, 2016)
China is a country that seems to have many opportunities. However, it has so many
challenges to operate in (Doing business, 2016). Expanding our business to operate in China
is a complex and difficult decision to make.
In this report we will explore and discuss how China is doing economically based on
economic indicators and the current business cycle.
China’s Economic State
China is a growing country and its economy is grapping global attention and interest. Having
the largest number of population, China’s market size is very large.
Overall economic health and trends
China’s economy is going very good and considered healthy. The trends in most indicators
are healthy and positive. However, there are some indicators that may trigger some risks or
suggest to us to be cautious.
Indicators for assessing China
There are many indicators to evaluate the economy of China. Some of them are healthy and
some are not. The ones that drove this assessment are found in what is known as “GUIDES”,
which is a guide to be used to have insights through economic indicators. (Weinzierl et all,
2011). The main indicators used are the following:

4. JWI515: Managerial Economics. Assignment 1 3
 Real Gross Domestic Product (GDP): An indicator to measure a country’s income
and output. It is the market value of the final goods and services produced within a
country. (Weinzierl et all, 2011). Current Real GDP is 676708 CNY HML, which is
the highest GDP since 1992 and it has been increasing since then.
 Real GDP growth rate: which indicates how much the GDP is growing annually.
Current growth rate is 6.7%, which is slightly above market expectations. Growth rate
is decreasing since 2010 but it was flat in the last two quarters.
 Interest Rate: It is currently 4.35%, which is the lowest rate since 1996.
 Inflation Rate: It is currently 1.9%, which is above market expectation 1.8% and
below current government target 3%. The trend is decreasing.
 Current Account: Which is the sum of the balance of trade, net factor income, and
net transfer payments (Trading Economics). China’s current account is a surplus of
$39.3 billion which started to decrease in the last quarter.
 Investment as Percentage of GDP: Which is the total spending on fixed assets. This is a
leading indicator of future output or return. The current percentage is 43%.
Important Economic Indicators for our company
Although all indicators may help in evaluating China’s economy, there are some indicators
that are considered important to watch for our company. As our company is in a service
sector and consulting industry, we are interested in overall national economy’s performance,
business’ performance, and government spending and budgeting.
To be specific we need to watch the following indicators:
 Real GDP: It is a measurement of overall economy. A critical indicator to watch and
monitor that reflects economic activities. And real GDP will help in evaluating the

5. JWI515: Managerial Economics. Assignment 1 4
level of output. The more output, the more business activities, and the more
opportunities.
 GDP Growth Rate: It gives an insight of how much the output is increasing. It may
help us to explore future opportunities and the health of an economy.
 Inflation Rate & Currency: As China’s currency is different than our country, we
need to consider the exchange rate of the currency and the inflation, which impacts
the real exchange rate (Moss, 2014).
 Government Budget & Spending: Government activities and decisions impact the
economy and the businesses, specially B2B and B2G. Our customers are business and
they are impacted heavily by government spending and budget.
 Investment as Percentage of GDP: It is important to consider the investment of the
country. It helps answering some questions regarding future output and production.
Are businesses investing or not? This question is important for our company to
consider as business decisions will affect the performance and our opportunities.
Current Business Cycle and its Implications
In contrast to Saudi Arabia, China’s business cycle is in expansion and in the boom stage.
The real GDP is in a steady growth. The historical trend, which is available from 1992,
shows that a high increase in real GDP and economy expansion started in 2002.
However, considering the growth rate, which is decreasing, it seems the economy is reaching
its peak in the current cycle. If it reaches the peak, it may indicate that the cycle may change
and contraction will begin. Therefore, there is a risk that the cycle in the coming years might
not be as bright as it is now. Our company needs to anticipate the contraction in the coming
years and try to survive by being innovative (JWI515, Week 3, Lecture 1).

6. JWI515: Managerial Economics. Assignment 1 5
Regarding the consulting industry in China, consulting industry is expanding i. The industry
expanded 8.1% in 2014 and 6% in 2015. It is expected to grow 8% in 2016 (Chinese
consulting market, 2015).
How would we benefit from current China’s economy? There are many areas and indicators
that can help us take advantages of current situation. First of all, the labor cost can be
benefited from by hiring from China. China’s GDP Per Capita PPP is much lower than Saudi
Arabia. In addition, China’s labor cost is decreasing. It decreased to 103.60 Index Points in
the second quarter of 2016 from 103.70 Index Points in the first quarter of 2016. (Trading
Economics). This also can be used to outsource some functions to China. And as the trend of
labor cost is decreasing, this advantage can continue for several years.
Economic Indicators to Monitor
A country’s economy is dynamic. Different factors and indicators change frequently. For our
company to expand in China, sustain, and grow, there are certain indicators to be monitored
and watch frequently. These indicators are as follows:
 Inflation rate: This indicator impacts many things and decisions. One of them is the
real exchange rate. (Moss, 2014). If inflation rate is high, that would impact our profit
if we change the currency to Saudi Riyal and also would impact the competition from
foreign imports and producers. (Moss,2014). This indicator should be monitored
every quarter to have a good prediction of current and future changes.
 Current Account: A good indication to a balance of an economy. It provides more
information other than exports minus imports. It gives a good picture of a country’s
economic performance that will help our company to evaluate the risk in operating in
China. This indicator must be monitored at least annually.

7. JWI515: Managerial Economics. Assignment 1 6
 Investment as percentage of GDP: A leading indicator that may help our company
to evaluate the future health of China’s economy. What they invest now is supposed
to give a return in the future. Therefore, it is an indication that will help us to prepare
for the future. We suggest monitoring this indicator semi-annually.
 Foreign direct investment: An indicator that will help our company to evaluate
China’s attractiveness and the amount of other foreign investment. It will help us
know if the growth is expected. As people’s fear and emotions may impact the
economy (Moss, 2014), this indicator will help us see how people perceive or deal
with China’s economy. This indicator must be monitored monthly or at least
quarterly.
Conclusion
China’s economy is growing and it has been expanding rapidly since 2002. It is the second
largest economy in the world. China’s economic state is healthy and is progressing very well.
Major indicators suggest a healthy economy, although some may suggest otherwise. There
are some indicators that indicate a positive economy such as real GDP, GDP growth rate,
Inflation rate, government spending and government budget.
China’s current business cycle is expansion, despite it may reach its peak in the coming years
based on the decreasing growth rate of the GDP. Consulting industry is expanding as well, it
is expected to increase 8% in 2016.
There are some economic indicators that must be monitored to help us make good decisions
and forecast for future events. Such indicators as: Inflation rate, current account, investment
as percentage of GDP, and foreign direct investment.

8. JWI515: Managerial Economics. Assignment 1 7
References
China’s Investment percentage per GDP (2016). Economy Watch.
http://www.economywatch.com/economic-
statistics/China/Investment_Percentage_of_GDP/
China’s overview. (2016) World Bank. http://www.worldbank.org/en/country/china
Chinese consulting market hits $3.2 billion, but firms need to adapt to the new normal
(2015). Source Global. http://www.sourceglobalresearch.com/content/chinese-consulting-
market-hits-32billion-but-firms-need-to-adapt-to-the-new-normal
Ease of doing business in china. (2016). Doing Business.
http://www.doingbusiness.org/data/exploreeconomies/china
JWI 530 - Week 3, Lecture 1: Leveraging the Business Cycle
Moss, D. (2014) A concise guide to macro economics. Harvard Business Review Press.
Saudi Arabia’s Investment percentage per GDP (2016). Economy Watch.
http://www.economywatch.com/economic-statistics/Saudi-
Arabia/Investment_Percentage_of_GDP/
Saudi Arabian Monetary Agency. http://www.sama.gov.sa/en-us/pages/default.aspx
Trading Economics, http://www.tradingeconomics.com/china/indicators
Weinzierl, M., Schlefer, J. & Cullen, A. (2011) GUIDES: insights through indicators.
Harvard Business School.