Globalisation in China - Assignment Example

The process of globalization deals with the interaction and integration among the people of different origin and creates an opportunity for international trade among the nations. The process has the effect on culture, political environment as well as the economic system of the nations that take part in the international trade (Lu & Wei, 2007). The process refers to the growing inter-dependence of the countries and there is cross-border flow of investment among the developed and the developing countries. The globalization creates an environment where the domestic producers produce efficiency in order to compete with the foreigners in the international market. The developing countries are said to be beneficial from the international trade as they undertake technological innovation in the process of competing with the developed countries (Tisdell, 2009). The trade driven globalization process has created new opportunities for many countries due to poverty reduction and increase in economic growth (Tisdell, 2009). However, despite all the advantages of globalization there are certain disadvantages of globalization such as the domestic firms lose their power in the local market with the emergence of foreign competition. The paper aims at conducting a critical analysis of the impacts of globalization in the international market. It also allows a scope to understand the crucial barrier to globalization and the key factors that affect the advent of globalization in the markets of China. Opportunities created by Globalization Due to the emergence of globalisation some of the developing countries are beneficial due to the growth opportunities that the globalisation brings in. There has been integration among the nations that is both qualitative as well as quantitative integration in the international trading system (Vidovich, Yang & Currie, 2007). However, globalisation has offered a lot of opportunities in China. The globalisation in China has led to an increase in FDI and foreign trade that has further raised the opportunity of FDI inflow and outflow in China (Dummer & Cook, 2008). The country’s dependence on foreign trade has increased rapidly and China started participating in international trade due to the exchange of goods and services. As a result of globalisation, China has received a lot of fund for carrying out the production activities and there has been technological development as well as establishing new industries. The study suggests that China has become the third largest trading nation after the United States and Germany. The trade relations between the United States and China have proved to be beneficial to many Americans so that they can have access to high quality consumer goods at low rates in the international market (Bardhan, 2007). However, China as an importer provides opportunities to the foreign manufacturers to earn their profit. The studies say that China had first adopted a mercantilist process in restricting the imports but after the increase in the exports of China from the other countries and the restrictions have been imposed on the imports from China. According to a researcher, the foreign trade has led to the economic growth in China due to three reasons (Yang & Clarke, 2005). Firstly, the international specialisation of the countries helps them to gain comparative advantage in the international market and the countries produce more goods in order to exchange them. Secondly, the exports of the countries are a result of the aggregate demand that increases in the international market and as a result, the exports also increase. Thirdly, there has been an emergence of foreign trade which resulted in the advent of modern technology and rise in productivity in the economy (Huang, 2007). However, the FDI acts as a driver to the economic growth in China and there are three important factors related to FDI. The FDI brings in high quality foreign direct investment that includes emergence of hard working labourers in the China with well functioning market institutions and the arrival of modern technology in the Chinese economy (Knight, 2006). Figure 1: Foreign direct investment, net inflows (BoP, current US$) (Source: World Bank, 2015d) The modern technology was highly beneficial for the Chinese people and has emerged in the economy to accelerate the production levels. The depth of the globalisation measures the size of the inflow and outflow that takes place from the Chinese economy in the international market. For example, China’s merchandise export to GDP ratio was around 188% in 2012 which was highest in the world (Junjie, 2012). The depth of the globalisation was noticed after the global financial crisis in the international market and China could overcome the financial crisis in the international market and returned back to the pre-crisis situation. Figure 2: Overall Depth of Globalization (Source: Junjie, 2012) According to the study, China was once world’s opponent in the context of globalisation but later on China joined the globalised sector with enthusiasm as compared to Japan and there was an increase in the GDP growth of China (Xu, 2005). In order to participate in the international trade, China has joined the World Trade Organization and has enhanced the production level in the domestic market and attracted more of the FDI within the economy. Nontheless, the study suggests that China is in different stages of development and there is a rapid growth in the Chinese economy and is expected to bring down the barriers to the free trade agreement within trading partners. Through the process of Globalization, the domestic market of China follows the international rules and has landed in competition with the developed countries. China has successfully reduced the trade barriers on the agricultural products leading to the market expansion and large scale corporate restructuring (Nayyar, 2006). Due to the entry that China made in WTO, it resulted in the opening of some of the markets to the foreign countries and new markets had developed as a result of competition between the domestic and the foreign firms (Girma & Gong, 2008). China enjoys a comparative advantage as it is a labour-intensive economy and the Chinese goods are manufactured by the labourers and they are exported to other countries through the country’s participation in the international trade. Due to the comparative advantage that China had, it could export goods to many of the developing countries in the international market. The impact of the globalisation in China has a spill over effect on the other countries as well (Girma & Gong, 2008). The country controls the inwards as well as the outward capital flow in the economy and the country slowly liberalises its capital account. On the contrary, it prevents the inflow of the capital in order to maintain the exchange rate with the US dollars. In most of the years, the FDI inflow in China has been higher that $40 billion per year. According to the study, as China is a labour intensive economy, there occurs migration of the labour force from rural areas to the urban areas in search of employment opportunities (Nayyar, 2006). Nonetheless, there exist substantial amount of labour force in the state owned industries that could be shifted to the modern industries in order to increase the level of production and to meet the rising demand in the international market (Nayyar, 2006). This resulted in a low productivity in the agricultural sector due to the movement of the workers in the industrial sectors. The growth rate in China has increased as a result of the emergence of the American companies and they started earning huge profit within Chinese economy (Nayyar, 2006). Due to the low prices of the Chinese goods, the inflation rate in the US economy is low and there has been occurrence of the trade deficits and the social adjustments. The studies suggest that China is experiencing a globalisation of taste due to the exposure of the population of the country to the foreign brands that are sold in China (Gregory, 2006). However, the process of globalisation has led to the emergence of the multinational corporations in China who are willing to set their business in the Chinese economy because they find it more profitable to conduct their business in the country According to a report, China’s share of the global economy increased from 4% in 1990 to 14% in 2014 (Trading Economics, 2015b). China has opened doors for the multinational firms through the introduction of the licensing policy or through the transfer of technology within the economy. The emergence of the multinationals ensured that even if there is a slow economic growth in China, there is a possibility that there would be an increase in the economic growth by 2017. Threats created by Globalisation in China The participation of China in the international business has given rise to some of the important issues and the other trading partners of China remain cautious as well as suspicious regarding the country’s participation (Little & Green, 2009). The capacity of China to overcome the risk factors associated with the international trade has also deteriorated with the emergence of globalisation and there occurs the possibility of the risk factors related to the implementation of the international trade. There are issues related to the political and economic environment of the country that can act as a barrier to the participation of China in the international trade (Little & Green, 2009). The participation of China in the international activities makes the country a contributor to some of the important issues such as proliferation of the nuclear arms, drug trafficking, criminal activities, environmental issues and the spread of infectious diseases (Little & Green, 2009). As China is considered to be the third largest in the field of nuclear power after US and Russia, there has been a process of technology transfer to the developing countries of Pakistan as well as Iran (Zhu, 2010). The criminal activities have become active in China due to the process of globalisation and the aspect of drug trafficking became the most important phenomenon (Zhu, 2010). The studies suggested that China has contributed to the environmental problems such as the ozone depletion as well as the climate change. The world health organization has indicated the advent of some of the communicable diseases caused due to Globalisation. Further, the emergence of globalisation can threaten the country’s national power in a number of possible ways that is the size and the scale of the multinational companies which has an impact on the policy making of the government (Breslin, 2010). Due to the participation in the international trade, there are a large number of laws that are to be followed by the trading partners. There are possibilities that the developed country may carry out their international trade in China and earn a lot of profit by carrying out the production activities at low rates. However, the process of globalisation has led to the setting up of the multinational firms within the Chinese economy in order to bring in the technological innovation, but these new technologies are not affordable by the poor people in the economy. Since, China is a labour intensive economy, the emergence of new technology may not be beneficial as the workers are not skilled enough to utilise the new technology (Little & Green, 2009). Hence, the multinational need to invest money in order to train the labour-force within the economy to get accustomed to the new technology (Junjie, 2012). Further, the participation in the international trade ensures competition in the market and the trading partners have the comparative advantage in any one of the products which raises the possibility of the outflow of the goods that are manufactured within the country (De Haan, 2011). Thus, the exchange of goods and services makes the country to lose its own resources and the emergence of the foreign countries creates a situation of dominance in the host country. Factors inhibiting the phase of Globalization There are some of the important factors that act as a barrier to the process of globalisation in the international market. The most possible factors can be regulatory control, emerging trade barrier, cultural factors, nationalism, war, as well as the civil disturbances and the risk factors associated with the management processes of the firms. The Chinese government has imposed a lot of regulatory controls on the trade and the monetary as well as the fiscal policies that in turn restricts the capital flows within the trading partners (Junjie, 2012). The high import duties have discouraged the process of importing goods from other countries. There are innovative marketing barriers that are introduced by the countries which have reduced the participation of the countries in the international trade. On the contrary, there are cultural issues that are the culture and tradition of the trading partners that hinders the trade activities (Little & Green, 2009). Further, the essence of nationalism raised by the domestic industries is reduced with the advent of the foreign companies in the international market. The rules and regulations have changed according to the trade activities that take place between the two nations. The rise in availability of the quality goods at low prices in the international market has encouraged the import of goods, but it has discouraged the domestic producers to produce the goods and services as it loses its competitive advantage (Trading Economics, 2015a). The civil disturbances within the Chinese economy have affected the interest of the investors to invest in the business activities and the country fails to participate in the international trade. The managers of the multinational companies prefer to run their business according to the rules and regulations set by them which create a problem for the host country to follow the principles of the trading partners. According to the depth index of globalisation, China has the rank of 122 and is following a path of development in the international market by competing with the other developed countries. There are other negative impacts that discourage the globalisation process that is, there is a growing level of inequality within the Chinese economy as the multinational firms recruit only the skilled professional and the economy is gradually shifting from agricultural to the industrial sector (Trading Economics, 2015a). Due to this major shift, the farmers started losing their job and the rate of unemployment has increased in China. PESTEL Analysis of China Political According to the researcher, the political force in China is unsettled as the government suggested development of the E-commerce business in the international market so as to serve a large number of customers within the economy. The E-commerce business allows the consumers with wide range of products as compared to the shops because the websites can be easily accessed (Junjie, 2012). Economical China has been emerging as a strong economy with high GDP growth rate as compared to the other developing countries and it is expected that the Chinese economy will emerge as a developed nation soon. The economic development of China has also created an impact on the small and medium enterprises. Since China is a labour intensive economy, the labour cost in China is low enough to deal with the production process. However, the study suggests that the growth rate can reduce due to the high inflation rate within the economy (Junjie, 2012). Social The population growth as well as the age distribution within the Chinese economy fluctuates and this in turn has an impact on the demands in the international market and the changes in the production processes accordingly. There are other social factors that affect the trading activities of China with other nations that are, the lifestyle of the individuals, education and religion (Junjie, 2012). Technological The multinational companies have brought in a lot of technological innovation in the Chinese economy in order to accelerate the production process as well as to utilize the technological innovation in the industrial activities. Further, technological innovation also refers to the designing of new products in the Chinese markets that are manufactured at low rates and sold in the international market at high prices. The introduction of the internet facilities as well as the E-commerce business is some of the technological innovations within the economy (Junjie, 2012). Environmental As the Chinese economy is a labour intensive economy, it reflects that there is availability of certain skills among the labourers who are transferred to the industrial sector in order to enhance the level of production in the economy. There was an increase in the government expenditure which in turn raised the money supply within the economy. Hence, study says that China has an environment friendly society (Junjie, 2012). Legal The multinational firms have set up the E-commerce business and the companies have earned intellectual property rights in producing their own products. Taxes are imposed in the export of these products in the international markets. The study also suggests that many of the products manufactured in China must be registered and certified by the relevant Chinese authority. Further, there are foreign exchange regulations in case of the exchange of goods and services that take place between China and other countries (Junjie, 2012). Crucial barrier inhibiting external integration The studies indicate that China has experienced an increase in the global integration in the past years due to the growth of imports as well as exports within the economy. The emerging trade barriers on the trade activities that takes place within China and its trading partner has an impact on the imports of the country and also inhibits the trading activities. China had to face the new forms of trade barriers that is the intellectual property rights protection and the technical barriers to trade (Trading Economics, 2015b). There are also non-tariff barriers to trade which closes the opportunity for foreign companies to have access to the service sectors such as the banking sector, telecommunication as well as insurance sector. Export restriction on raw materials by the Chinese government acts as a major trade obstacle in the international market. The tariff barriers comprise of the tariff reduction and tariff quotas, whereas, non-tariff barrier comprises of export and import licensing, government procurement, subsidies, import prohibition and the technical barriers to trade (Das, 2009). According to the study, conducted tax discrimination and the restriction on the ownership of the firms by the foreigners are considered to be other trade barriers that affect the carrying out of the international trade. As result of the concern for local customs, tradition and environmental protection in China, there are technical barriers to trade which are laid in order to control the exports of the foreign producers in the international market. However, a group named GATT was set up in order to analyse the impact of the non-tariff barriers to trade and China had to face the trade barrier that is the Agreement on Technical Barriers to Trade (Little & Green, 2009). There were severe impacts of the trade barriers imposed on the export of goods and services and the substantial reduction in the trade barriers led to the fall in tariff rates imposed on the non-agricultural products. The dispersion of the tariff rates also reduced leading to a further distortion in the economy (Little & Green, 2009). According to the principle of comparative advantage, free trade allows the countries to take part in the international trade without imposition of the trade barriers and the countries generate a high level of output as compared to the autarkic situation (Little & Green, 2009). In case the economy is perfectly competitive, there is a possibility of allocation of resources but the Chinese economy was in the state of no trade and it gradually took part in the trading activities with other emerging economies. The free trade situation helps to achieve equality between the ‘marginal rate of transformation in production’ of the trading partners and the marginal rate of substitution in the consumption activities, whereas, the trade barriers hinders the equality by creating a mismatch between the domestic as well as international prices (Little & Green, 2009). However, the regulatory barriers imposed on the internal trade processes reduce the flow of resources within the Chinese economy. The tariff barriers imposed on the foreign imports by the Government of China is to protect the domestic firms of the Chinese economy from the high level of foreign competition. The government of China sets the tariff revenue so as to maximise it (Little & Green, 2009). Therefore, the tariffs are set to enhance the level of profit earned by the government. However, the study says that if the tariffs set are for partial protection, the goods are imported from other countries but they are imported in smaller quantities and custom duties are imposed on these goods. On the contrary, the non-tariff trade barriers comprise of the import quotas as well as the anti-dumping processes on the imports of the Chinese economy (Little & Green, 2009). The quantitative restriction that are imposed on the imports of China are the import-quotas that takes place as a result of the issuance of the licenses to the individual businessmen and there are various types of import quotas that are allowed, which are unilateral quota, tariff quota as well as the bilateral quota. Further, the government of China imposes the anti dumping duties in order to get rid of the foreign competition in the Chinese economy (Little & Green, 2009). Due to the imposition of import quota, the domestic firms have the advantage to produce the goods and services and also sell these goods in the international market. According to the study, the import country and the export country have the similar factor proportion as the countries would have the competitive advantage which depends on product differentiation, market structure and economies of scale (Little & Green, 2009). The government of China also provides subsidies on certain goods and services in order to provide the domestic firms with opportunity tax exemptions, cash disbursement as well as the preferential exchange rate. The subsidies granted by the government would ensure cost advantage to the country so that the domestic firms manufacture the goods at low rates (Little & Green, 2009). The domestic firms would have the advantage of the improved technology in the international market as they would earn high profit by exporting the goods to other countries (Little & Green, 2009). Figure 3: GDP growth (annual %) (Source: World Bank, 2015c) The study suggests that the exports of China has increased from 1763.31 USD hundred million to 1902.57 USD hundred million in May 2015 and it is expected to further rise in the next quarter of the year (Trading Economics, 2015a). The growth of exports in the Chinese economy has led to a rapid growth of GDP in China. The major exports of China are labour-intensive products such as the clothing, footwear, plastic products as well as the furniture. There has been an increase in the export of the high technology products and the percentage of such products exported from China was around 29% in 2012 (Trading Economics, 2015a). Figure 4: Graph showing exports of China (Source: Trading Economics, 2015a) On the contrary, the imports of China have decreased from 1421.96 USD hundred million to 1312.64 USD hundred million in April 2015 (Trading Economics, 2015b). The main imports of China comprises of aluminium, copper and soya beans and the import partners comprises of South Korea, Japan, European Union and Taiwan. China has reduced the process of importing goods from other countries in order to promote the goods manufactured within the country. Thus, the domestic firms earn some profit by producing goods at low costs and selling them at high rates in the global markets. The study indicates that China has landed in competition with the advanced countries (Trading Economics, 2015b). Figure 5: Graph showing imports of China (Source: Trading Economics, 2015b) Conclusion The paper discusses about the international business environment that is related to the globalisation which in turn has some positive as well as negative impacts. The globalisation within the economy promotes international trade between the developed as well as the developing countries, and the developing countries have the opportunity to grow by raising their GDP. The researcher has chosen China as the country for conducting the research because the position of the country in the depth index of globalisation is at 122. Hence, the impact of globalisation shows that China has been gradually emerging as the strong economy as compared to the developed economies, but there are threats associated with the globalisation that the multinational companies try to dominate over the domestic firms. 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