What Will Happen If China Becomes The World's Largest Economy - Assignment Example

What Will Happen If China Becomes The Worlds Largest Economy? Chinas economic growth has always been quite impressive. It all became evident when it overtook Germany as the largest exporter in 2009 and Japan as the second largest economy in 2010 (Morrison). China, however, would not have said the same thing 30 years ago where it only accounted for 2% of the worlds GDP. By then its economy was smaller than that of the G7 countries and also those of developing countries such as Brazil and India (Morrison). Even so, its economy started growing so fast that it was able to shoot to the 3rd largest global economy by the end of the millennium and contributing about 7% of the global economy. In 2008, the giant economic recession impinged on the leading economic power, the US, the most. America made vast investments in China resulting in the booming of China’s economy which later became the second largest in 2010 (Holz 1665-1691). Since then, rapid economic growth has been the norm that even made it almost overtake the US in 2014. Many economic analysts have projected that China will take over the US and become the largest economy by 2024 (“China to Become”). This is according to an analysis done by the IHS, which projects that in 2024 the nominal GDP of China will be $28.25 trillion while that of the US will be $27.31 trillion (“China to Become”). This will be due to the rapid consumer spending that will continue to grow by an average of 7.7% annually over the subsequent decade. This large consumer market will propel China to become the worlds biggest economy (“China to Become”). Its vast industrialization and investment in real estate will also be significant contributing factors. That said, if China were to increase its domestic market and not rely too much on the export market, it would have the largest economy. Its influence too on the whole world would increase tremendously. This paper discusses what would happen if China were to become the worlds biggest economy. Positive Impacts Improvement of Standards of Living Rapid economic growth and intensified productivity have made extreme poverty and insecurity of livelihood a thing of the past (Yueh). If its economy continues to grow as rapidly as it is to make China the number one economy, this would mean that the standards of living would improve to an extreme high and the differences in income levels would be every minimal. Being the largest economy will be characterized by the balanced development of cities and immense urbanization. Cities are typically the centers of economic and cultural development. With urbanization, access to fundamental and social amenities will be easier. With almost 100% of its population being able to access social amenities and afford housing, medical care, food and clothing, standards of living will be high. High standards of living resulting from urbanization will come from the increased opportunities for employment. According to the a report by the Mckinsey Global Institute, Chinas cities will offer approximately 450 to 500 million jobs in 2025 a rise from 290 million in 2005. By the China is expected to be the largest economy. A significant number of people will be living in the urban areas while compared to the countryside. Therefore, the majority of people in China will have a high standard of living. Moreover, the countryside will be adequately developed, and wages will rise. This will result in the elimination of cheap labor. This will make the majority of people able to afford a reasonable lifestyle. Urban governance will also be very beneficial in that the making of policies leveraging the benefits of urbanization and high standards of living will be implemented. Intensive industrialization and the booming of the real estate business will increase employment levels and allow people to afford decent housing. High standards of living will mean high life expectancy, high literacy and increased purchasing power parity. An Engine For Global and Regional Growth China as the largest economy will have a significant global influence on other countries including the developed and developing ones (Feldkircher and Korhonen 63). Countries like US may view its rise as a threat but looking at the situation in terms of a global network involving China; its economic growth is not threatening but instead results in mutual benefits for it and other countries. When the Chinese export is studied carefully, one would realize that the export of foreign companies constitutes 56% of China’s total amount of export. This would mean that foreign investors would be the primary beneficiary of Chinas rise as the supreme global power under the configuration of world product division. Its rise would also mean that more foreign investors would be willing to invest in China resulting in growth for China and their countries as well (Feldkircher and Korhonen 65-72). Additionally, if the US and China by then were to refrain from viewing each other as enemies and work together, there will be outstanding mutual benefits. This is due their interdependent relationship where the US provides Chinas largest consumer market while China plays a significant role in maintaining the dollar system with its financial market being very attractive to the US. However, it is not obvious that their relationship would continue since China’s focus has shifted to developing the capital, knowledge and technology intensive industries while the US is mainly interested in its service sector. Regionally, China’s growth will have a vast effect on the economies of the APAC (Asian-Pacific) countries and also the ASEAN (Association of Southeast Asian Nations) countries. This will especially be due to increased Chinese tourism to other Asian countries which continues to grow with China’s economic growth (“China to Become”). The growing consumer market and increased spending growth will provide an increased market for their exports (“China to Become”). The implications of an additional $7 trillion being added to annual Chinese consumption by 2023 will affect APAC’s growth tremendously (“China to Become”). This is because of their exports to China. These APAC countries include South Korea and Australia whose trade ties are set to improve. The countries will benefit under high proportions with the rising consumer demand after China’s triumph. ASEAN countries can attest to the fact that their export market keeps on developing with Chinas growth with an average annual rate of 20% in the last ten years (“China to Become”). China has also been known to invest mainly in the developing countries and work with them to improve their infrastructure such as roads, railways and electricity supply (Singh 646-47). It also works intensively to ensure industrialization in these countries. Examples of such countries are in Africa including Zimbabwe where China controls Air Zimbabwe, Zimbabwe Broadcasting Corporation and their railways and electricity supply (Singh 646-47). Upon becoming the largest economy, China will continue to invest in the developing countries, and its presence will be broadly recognized. It would also become a major lender to the countries therefore helping them uplift their economies. Increased Innovation and Technology Both Globally and Regionally China consistently invests heavily in its technology and innovation, and it is through its continued research and technology that it has a thriving automobile industry. Its indigenous innovation policy has focused on development of its oil and gas industries, pharmaceutical innovation and development, production of new-generation broadband wireless mobile communication networks, high-end general use chips and necessary software among so many innovation projects (Atkinson). China spends more than 1.5% of its GDP on research and development. By 2020, it is expected to spend more than 2.5% of its GDP on research and development (Wu and Xu 8). The continued research and development results in the development and enhancement of its industries. This among other reasons is the reason China enjoys a high speed in economic growth. China is likely to continue its research and development even when it becomes the global superpower. It will influence technology and development in the developing countries as it does, as in the case of Zimbabwe. It is even likely to offer support to more developing countries in a bid to make them have a more advanced technology (Wu and Xu 8-15). Its neighboring Asian community is also likely to pick up the pace and enhance their innovation and technology. Competition with other significant economies to innovate and introduce high-end sophisticated technologies is likely to be even higher if China were to become the largest economy. It would, therefore, not be such a bad thing for China to become the leading economy. In fact, it would result in a more modern, dynamic, sophisticated and technology-oriented universe. Adverse Impacts Conflict between the China and the US The US had always taken the position of the global leader long before China even started growing tremendously. It has always enjoyed a position of power and its influence on other countries has always seemed unbeaten to them (Singh 646-47). It has always enjoyed the benefit of globalization by exporting to the entire world. Currently however, China also enjoys globalization and is a tremendous competitor of the US in terms of trade, having power over the value of the dollar, owning a vast number of us treasury bonds and making key sectors of the American manufacturing industries. Furthermore, China has become an alternative model for many countries. Since 2003, the US has become increasingly unpopular among countries because of its emphasis on hard power. This has created room for China to take over due to its embrace of multilateralism and the way in which it emphasizes on a peaceful rise (Singh). China has already created very strong ties with developing countries with its criticism of the Western-dominated system. It also presents itself as a model for them to use to learn about fast development and possibly grow like China (Singh 646-47). Developing countries take a large share of the world’s market. If China were to take over and become the global leader, the US would have to share the power and influence of the world with China. China would eventually become the most favorable country to trade with and former trade partners of the US may choose to change sides. Investors would also become more interested in China than the US. This is not to say that the US would lose its dominance entirely. On the contrary, it would still have a significant influence on the world. The only difference would be that it would be receiving a minuscule share of the global market compared to the one it had prior to Chinas takeover. This would create tension and unhealthy competition between the two countries. There would be increased competition for energy and resources, competition for strategic partnership and China taking over major American firms by buying stakes in the companies using their sovereign wealth fund. This would still intensify the growing tension between the two countries. With memories of the cold war still clear to America and the pressure of economic stagnation and the rising unemployment, this would result in friction between the two countries (Singh). This would be very unfortunate for both of the countries since their working together would lead to significant global benefits. It would, therefore, be a significant loss to the entire world. Increased Environmental Degradation and Global Warming China’s current high growth and urbanization has been characterized by immense urbanization. This has brought about the high cost of environmental pollution to China. Over 50% of China’s urban population is characterized by smog-filled cities. Research has showed that an estimated 350000 lives were lost due to air pollution and 250000 new cases of chronic bronchitis reported in 2003 (Cropper). The lives lost had a value of 4% of China’s GDP at that time (Cropper). China fails to have efficient policies to control its pollution. Even those present are hardly followed. This was showed by a report in November 2010 which indicated that 113 of Chinas cities did not meet the required national air standards. Even with its attempt to create reforms that aim to protect the environment, Chinas air quality remains the worst in the entire world. 12 of the 20 most polluted cities in the world are located in China (Vennemo 210). Health and economic damages are an evident matter and are quite substantial. Even its rural areas are not left out. The WHO has previously made estimates that indoor air pollution due to solid fuel burning shortens the lives of 420000 rural Chinese every year. Its rivers and lakes too are extremely polluted. Water in half of its lakes is unsuitable for consumption. With these facts, it is evident that Chinas environmental policies are fragile (Vennemo). Were it to become the global leader, it would be likely to influence other countries to carry out intensive industrialization. With China as a model, they would overlook their environmental policies resulting in greater environmental degradation in the entire world. Chinas policies still indicate intent to increase coal consumption even by the time it is expected to be the largest economy. The pollution will, therefore, become even worse. It would not paint a good picture if the worlds global leader could not even control its environmental state, and even worse has influenced the same in other countries. There would be a probability that the cost of the pollution would even trigger its downfall from being the largest economy to a suffering economy. Conclusion China’s economy is the most enviable of all economies in the world. It rose from a state of economic poverty and grew at a 10% rate until it beat top economies to become the number two economy. The growth rate has been estimated to increase at a rate 7.7% rate each year until it beats the US to take the top spot. The outcomes of its takeover would result in a chain of benefits for itself, its surrounding region, and the entire globe. It would lead to enhanced trade relations ensuring beneficial ties are established. It would also result in advanced technology in the whole world resulting in the development of more sophisticated systems and overall development of the entire globe. Developing countries would benefit the most as China is committed to ensuring it supports their development. China has always had close ties with the developing countries. Chinas people would benefit from increased globalization that would improve their standards of living. Unemployment and low wages would be a thing of the past. They would even be able to afford clothing, good food, and better housing. Even with the numerous positive outcomes, China would also face adverse consequences. Examples of these are a possible conflict and tension between it and a major contributor to its growth the US. Such a conflict would not be beneficial as the two global giants would be better placed to embrce peace thus impact the world positively. Environmental pollution were it to happen would be the worst embarrassment to society. It would have negative consequences for many parts of the world. China taking the top spot is more beneficial and is therefore not such a dreadful event after all. Works Cited “China to Become”. China to Become WorldS Largest Economy In 2024 Reports IHS Economics | IHS Online Pressroom. N.p., 2014. Web. 18 May 2015. Atkinson, Robert D. "The Information Technology and Innovation Foundation." Washington DC 7 (2006). Cropper, Maureen L. 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Technology Intermediaries And Regional Innovation Performance: An Empirical Study In China. Asian Journal of Technology Innovation 21.sup2 (2013): 7-19. Web. Wu, Yanrui. Innovation and economic growth in China. University of Western Australia, Business School, Economics, 2010. Yueh, L. What Drives Chinas Growth?. National Institute Economic Review 223.1 (2013): R4-R15. Web. Read More