Purchasing power parity and comparing economies of asian nations

Success in East Asia can also be attributed to the fast pace of modernization and specialization in technology. For instance, Japan is one of the countries that is considered a developed market due its advancements in terms of economy and the capital market. A country like China, which is the highest ranked worldwide in terms of gross domestic product by power purchasing parity and ranked second in nominal gross domestic product, benefits from the nature of it economy being a command economy hence control of financial and economic activities is under the government and the leader have the power to control the currency. ("The Difference Between GDP Nominal and GDP PPP") Additionally, Hong Kong is among the leading financial centres in the World.

Having established the Purchasing Power parity theory, it is important to establish that it is one of the methods of measuring the currency or the purchasing power of a country’s currency. South Korea is fourteenth with 2. 027 trillion and Taiwan is twenty-second with 1. 175 trillion. On the contrary, the ranking is not similar with regards to the nominal gross domestic product. For the latter, the leading country is USA. The Economy of China. As earlier stated, China is one of the leading countries when it comes to GDP by PPP. The national economy is comprised more of the public sector rather than the private sector and economic control lies with the government. Up until 2015, China recorded the fastest economic growth of approximately 10% on average for a period of thirty years.

Economic success of China can largely be attributed to its wealth in natural resources as the country’s resources is estimated at approximately $20 trillion. However, in the late 20th Century, China changed its economic strategy from centrally planned to being a free market capitalistic economic system. Amidst a long period of decline in economic status, Deng Xiaoping was the leader of the People’s republic of China from 1978 to 1989, instituted what is referred to as the Chinese economic reforms which began in 1978. These reforms brought to light the market principles which were instituted in two stages. The first stage which took place in the late 1970s and early 1980s involved the openness to foreign markets and decollectivization of the agricultural sector.

The second stage of the reforms involved the contracting out of most state owned industries. ("2017 International Comparison Program for Asia and The Pacific: Technical Assistance Report") China has also developed from the production of energy. Most of the power generated is out of fossil fuels with minimal percentages left for hydroelectric sources and nuclear energy. China have a good potential for hydroelectric power production due to it effective river network and mountain terrain. China also has mineral resources with the most abundant resource being coal. The Chinese currency is referred to as ‘renminbi’ which means people’s currency and is referenced as the Yuan. ("China Economy - GDP, Inflation, CPI and Interest Rate") China has a very high GDP (PPP). The value is higher than the United States.

("China GDP Per Capita | 1960-2018 | Data | Chart | Calendar | Forecast") This means that if someone had a dollar in China and another person had a dollar in the United States, one could purchase more in China than the latter would in the United States. Ideally, thing is cheaper in China. For instance, if we consider the ‘Big Mac’ index using the dollar as the reference currency, the price of a Big Mac in the United States in 2018 is around $5. China utilizes a huge number of rural workers who work in agricultural farms. This means that the service sector would not have to spend a lot when it comes to labor hence production will be cheap and the end products will also turn out to be cheap.

Services are also offered at a cheap price because of the abundance of cheap and ready labor. Another reason is that most of the commodities are produced locally and ultimately sold in the local markets. Due to the high rate of production due to cheap labor, the goods are sold at fairly cheap prices. However, there are also weaknesses that derail the economy of China. one of these weaknesses is based on their success story. One of the contributions to the development of the economy on China was the availability of resources and capital which was readily made by state controlled institutions. Ironically, one of the problem that currently affect the economy of China is mismanagement of funds and resources by the same state institutions.

The second major challenge addresses a future decline of the economy. Examples of motor vehicle manufacturing companies include Toyota which is the largest automobile manufacturing company in the world, Suzuki, Honda and Mazda. Japan’s manufacturing industry is what contributes much to its gross domestic product. The industry contributes 24% of the country’s GDP. ("Quandl") The manufacturing industry includes motor vehicle manufacturing as well and the manufacture of electronics. However minimal, agriculture also contributes to the economy of the country. However, the Yen appreciated in 1973 as it was then valued at 271 JPY per USD. However, the Japanese government intervened and focused on establishing an effective export market. This resulted to the value of the Yen to appreciate to 239 JPY per USD in 1985which then appreciated to 128 JPY per USD which ultimately led to the peak value of the currency of 80 JPY per USD in 1995.