Last week, China announced its GDP had grown at a 9.8% rate for the last quarter of 2010. Compared to the U.S. GDP, which is expected to be 3.5% for the last quarter, China’s growth rate is almost three times higher than the United States.
The Peoples Republic of China has become one of the most important economic regions in the world today, thanks to state ownership of many key industries and the financial system, the Chinese government has had the possibility of vastly increasing economic output in recent years to become one of the world’s leading emerging markets.
The People’s Republic of China’s Recent Political History
The People’s Republic of China was established on October 1st, 1949 after the Chinese Civil War was won by the Communist Party of China led by Mao Zedong. The defeated Chinese Nationalist Party, led by Chiang Kai-shek, retreated to the island of Taiwan where the Republic of China has operated independently from the People’s Republic since 1950.
Despite the cessation of military conflict between the ROC and the People’s Republic in 1950, the two Chinas have competed for world recognition. The Taiwanese government had been recognized until 1971 when the representatives of the Taiwanese government were expelled from the United Nations in favor of the People’s Republic.
Since opening up to world trade in the 1980s, the People’s Republic has combined a communist system of government with private sector expansion to become the world’s leading example of state capitalism or a nation where the forces of economic production are controlled by the state in a free market economy.
Economic Overview of the People’s Republic of China
The Chinese economy is the world’s second-largest after the United States both nominally and in Purchasing Power Parity or PPP terms. The average growth rate for the Chinese economy has been an incredible 10% per year for the last 30 years, making it the world’s fastest-growing economy.
To briefly illustrate how much the economy of the People’s Republic has grown, the poverty rate for the country in 1981 was 53%. By 2005, the poverty rate had fallen to a mere 2.5%. Chinese GDP is made up of 47% industry, 43% services, and 10% agriculture. China’s main industries consist of mining iron, coal, aluminum, and other metals, armament manufacturing, machine building, petroleum, textiles, automobiles, aircraft, communications and telecommunications, food processing, and all sorts of consumer product manufacturing to name just a few.
The currency of the People’s Republic of China
Since 1948, a year before the establishment of the People’s Republic, the official currency for the People’s Republic of China is called the Renmimbi, which in Chinese means “people’s currency”.
The Renmimbi is identified by its ISO 4217 code of CNY and its symbol is ¥. The currency is issued by China’s monetary authority, the People’s Bank of China. The Renmimbi primary unit is called the Yuan, which in turn is subdivided into 10 jiao that can be further divided into 10 fens. Denominations go from one jiao to 100 Yuan.
The Renmimbi has been traditionally pegged to the U.S. Dollar. In the 1980s the currency was devalued in order to stimulate Chinese exports. The currency steadily declined from 1.50 in 1980 to 8.62 Yuan to a Dollar in 1994.
The increase in Chinese exports allowed the government to maintain a peg of 8.27 from 1997 to 2005, when the peg to the Dollar was finally lifted, bringing the currency to 8.11. Nevertheless, due to the financial crisis of 2008, the Chinese re-pegged their currency.
In June of 2010, the PBOC released a statement saying it would increase the Renmimbi’s exchange rate flexibility and is presently priced as a managed floating exchange rate based on market demand and referenced to a basket of other foreign currencies. The Yuan’s recent value was 6.58 per one U.S. Dollar.
A quick glance at some forex broker reviews clearly shows that no retail online forex broker currently offers customers the possibility of trading the Renmimbi. Nevertheless, the Chinese government has authorized trading the currency outside of China for the first time last year and trading has gone from zero to $400 million in just a few months. Also, Renmimbi futures can be traded on the Chicago Mercantile Exchange for cash settlement on the rate of exchange published by the PBOC. If you go on to trade other currencies in a live account, keep in mind that Forex trading is risky and not suitable for all investors.