Indicators of Sustainability in the Chinese Future - Case Study Example

Indicators of Sustainability in the Chinese Future Population as an Edge China’s main defining feature, its huge population, is one of the strongest reasons why the growth rate of China can be sustained. Much of China’s growth can be attributed to the fact that it has enjoyed large Foreign Direct Investment (FDI) which gave rise to the booming of several industries. There are two reasons why FDIs is flowing to the China. First, the Chinese population serves as a huge market that is largely unexplored. Capturing the Chinese market could lead to millions, if not billions, of dollars in profits. Establishing a presence in the said region is vital in achieving this end. Second, Chinese labour is cheap as compared to American and Western Europeans due to the fact that cost of living is technically very low and that competition for jobs is very fierce. Only a small portion of the Chinese population has been tapped for labour and most of them are in cities. Estimates point out that out of China’s 1.4 billion inhabitants, 800 million people live in the countryside. Out of these figure, 400 million countryside dwellers were found to be underemployed and could serve as a huge source of labour for the years to come. The importance of this huge labour pool is that it assures the industry that the wage levels will not be rising significantly. A research conducted by a Hong Kong based business analyst showed that the basic salary for unskilled workers in China has not varied significantly over the past decade. In Guangdong, for example, the basic wage was $100 in 1996 and was still $100 in 2006. This only implies that the country remains attractive as a manufacturing site because of its cheap labour. Western companies have reported that they had to increase the salary of their workers by as much as 10% annually to keep them staying in the company. This increase is inevitable no matter what country one operates in and China offers a large pool from which one can draw replacements. While other countries such as Thailand, Indonesia and the Philippines also offer cheap labour, none of them offers the huge market China has. Therefore, China can be guaranteed of a continuous pouring of Foreign Direct Investment because of its large population. (Tuuli 2006, p.3) Improved Training, Education and Industry Standards One might argue that although China has a large labour reserve, most of them are unskilled and illiterate. The Chinese government are also focusing on tertiary education and not on giving access to free basic education in general. Most of Chinese schools are also lacking in educational resources. The Chinese government has recognized this early on and have already established an Illiteracy Elimination Division under the auspices of the Ministry of Education. Gao Xuegui, current director of this division, has disclosed to local media in November 2007 that China's central finance department has allocated RMB18.1 billion this year for the country's compulsory education sector. In addition, up to 150 million students in the country have been exempt from paying the tuition and incidental expenses for their compulsory education. In effect, business firms are assured of the availability of skilled professionals. (BDL Media, 2007) There are also efforts to implement higher standards in professionals. In the hospitality industry for example, government agencies headed by the Chinese National Tourist Office issued the "Suggestions on Reform the Qualification Examination of Tourist Guides, Professional Ranking Examination and the Manager Authentication Work of Travel Agencies." This manual aims at improving the examination of tourist guides in a scientific way and accelerating the pace of construction of the contingent of tourist guides. It also implemented the G-TELP, a system for China's hotel vocational English standardized training and tests and was introduced to various places in the country. (Zhang H., Pine R. and Lam T. 2005, p. 45-47) The latest improvement also came from the hospitality industry which is very active in light of the 2008 Beijing Olympic and the Shanghai World Expo. In October 2007, the China Tourist Hotel Association has made known to the public the creation of a new criterion entitled, "Chinese Hospitality Industry Service Etiquette Criterion (Trial)", which details practical training standards for the regulation of the service etiquette of China's hospitality industry and creation of a civilized and professional hospitality image. (BDL Media, 2007). The significance of this development is that it shows that China is trying to eliminate the global conception that most of its products and services come in low quality. To assure Foreign Direct Investments from continuously flowing into the country, it must be able to show that it can meet Western standards of quality. This is particularly important in light of the many controversies surrounding products sourced from China. Most prominent of this is the pullout of China-made Mattel products from shelves around the world due to safety and manufacturing issues. While it is not an assurance that the efforts to improve public perception will be successful, it is still one good way of attracting foreign investment. High Savings Rate China also enjoys from its high savings rate enabling it to fund investment from domestic resources. While other countries have been financing their projects with foreign debt from the World Bank, the European Union and the United States, China has been able to stand for its own and is technically a net exporter of capital if foreign reserves are included. Major foreign investments pouring in every sector contribute to higher revenues providing further initiative and funds to develop and promote the domestic projects. (Nesvisky 2007) Trade Liberalization Trade liberalization is also being implemented in the country in accordance with the requirements set forth by the World Trade Organization (WTO). Average tariff rates have dwindled from 25% to 10% and the number of import quotas and licenses has declined. Foreign companies are also able to export Chinese company manufactured products unlike before where they can only export the products that they manufactured. It has also intensified its campaign against copyright infringement by strengthening their police and intelligence capabilities. (Blake, Cassels & Graydon 2006, p. 9) 2.0 Obstacles in Achieving Sustainability Environmental and Safety Issues Our analysis so far would point out that China can sustain its rapid growth rate. However, the issue is so complex and depends on many factors that there can be no definite conclusion that can be made. One pressing issue that affects the sustainability of the Chinese economy is the increasing concern for environmental degradation as well as health and safety of products and employees. China has been lax in its environmental laws so as to attract foreign companies who face stringent environmental legislation in Western settings. Much of the world today is also targeting Chinese products for safety issues such as what happened with Mattel. Addressing these concerns would prove to be costly as the government must now relocate funds towards these endeavours. (McGregor 2007, p. 315) Social Restlessness Saxon (2004) relates that many social scientists are also pointing out that the Chinese people are becoming restless due to the rising disparity in Chinese society. In the Communist era, the Chinese people have enjoyed a social security system that makes sure that everybody has something for himself. With the coming of capitalism, a gap has risen not only between rich and industrial coastal provinces and poor western and north eastern provinces, urban and rural areas but also in rising income differences in the cities. The country is said to have experienced thousands of protests during the transition to a capitalist economy occurred. (p. 256) Social stability is important to ensure that businesses run smoothly and without fear of debilitating protest and mass actions. The Chinese government is still Communist in nature and being so, it has adapted measures that ensure and widen local administrative decision powers. This move is to ensure that there is still equality in the nation. This widening of political and economic powers of local administrative units is problematic as it enables them to formulate their own set of rules and regulations so long as it does not stray too far away from the core principles of the central government. This presents a problem for foreign especially those who make interprovincial purchases as they have to comply with different set of requirements per province. Conflict between National and Local Governments The question that now comes to mind is whether this regional fragmentation could have dire results when in fact the United Kingdom and the United States have its local administrative body also empowered for their self-determination. According to Nesvisky (2006), the problem with regional government in China is that they are focused in short term development while the central government aims at lower, but more sustainable, economic growth than its predecessors. For example, local administrative bodies did not heed to the demands of the central government to curb investment and credit rates so as to minimize inflation. They did not heed to this demand because they wanted their own provinces to have the same economic development as achieved by Shanghai and other industrial cities. Losses from Non Performing Loans (NPLs) Estimates of international rating agencies have placed the cost incurred by NPLs at around 35% of GDP with some analysts stating that it can reach as high as 50%. These non performing loans presents failed opportunities and badly invested funds that could have been used to finance activities for the development of other profitable industries. Compounding this problem is the fact that new loans believed by most analysts to be non-performing in the future are still being given out. (Koivu 2006, p. 8) Scarcity of Resources China is one of the world`s biggest exporter of goods but these goods must be processed from raw materials which China cannot completely supply. The basic law of supply and demand would tell us that when demand is high and supply is low high, the tendency is for prices of that commodity to rise. This is indeed the case when China caused the upward spike in steel prices in2003 and early 2004. Aluminum, oil prices and transport costs have also been strongly affected by China’s rapid development. (McGregor 2007, p. 242) Concluding Remarks There is no definitive answer on whether China can sustain its rapid growth due to the complexity of the issues involved. While China holds certain resources that can improve its economy in the future, social issues such as disparity and conflicting policies present obstacles that can be hard to overcome. In this regard, China`s future is still uncertain. References: BDL Media (2007). Chinese Hospitality Industry Faces Unified Service Etiquette Standard. Shanghai: BDL Media Publications. Blake, Cassels & Graydon Legal Firm (2006). Blakes Guide in Doing Business to China. UK: Blake, Cassels & Graydon LLP Publications. McGregor, James (2007). One Billion Customers: Lessons from the Front Lines of Doing Business in China. UK: Free Press Nesvisky, Michael (2007). Will Super High Chinese Growth Continue. Retrieved Dec. 11, 2007 from http://www.nber.org/digest/nov06/w12249.html Saxon , Mike (2004). An American's Guide to Doing Business in China: Negotiating Contracts And Agreements; Understanding Culture And Customs; Marketing Products And Services. London: Adams Media Corporation Koivu, Tuuli (2006). The sustainability of Chinese growth. Finland: B a n k o f F i n l a n d BOFIT – I n s t i t u t e f o r E c o n o m i e s i n Tr a n s i t i o n Yan, Rick and Lebeberthal, Kenneth (2006). Harvard Business Review on Doing Business in China. Harvard Business School Press. Zhang H., Pine R. and Lam T. (2005). Tourism and Hotel Development in China From Political to Economic Success. The Haworth Hospitality Press: Oxford. Read More