The Rising Economy of China - Research Paper Example

?Introduction: The journey of China can be well described as from pauper to king. China was a stagnant poor country but today it stands as one of themost powerful economy in the world within a span of just 28 years. The analysts define such huge success as the greatest success story economically in this new era. Economic reforms came into being in the year 1979, since then if we see, we get that the rise of GDP for China was 9.7% annually. Economic size of China since then has increased over eleven times the per capita growth of the GDP was over eight fold. The world ranking of China in trade rose from 27th to 3rd. However, from 2007 – 2009 china like the other developed nation saw a downfall in its growth but the recovery system was very good. Unlike the other western nations and US, China did not suffer from huge recession. Going through few measurements, China’s economy is the second largest and is moving towards becoming the largest. (Grumbine, 2007) This research paper on China has examined all the implications including both the opportunities and challenges, considering the U.S. economy form the huge growth of China and her emergence as one of the most powerful economy in the world. Will China Overtake the U.S. Economy? The real GDP of China has grown twice as fast before the reformation period. Let us go through the factors, which have led this success story of China. Looking at China’s rapid growth, many economists and analysts have given their view studying it since 1979. If we look through China since the period of economic reformation, we see that China has been able to accumulate huge wealth and has gone through many developments. Both of these factors went equally hand in hand. Improvement in productivity led to the improvement of the growth and this hereby-generated huge fund, which ultimately led the road for new investment. Another advantageous situation for China was that it could draw huge amount form the domestic savings from that of finance investment during the time of economic reforms. (Wu, 2011) What led to China’s foreign direct investment (FDI) were incentives and trade reforms. This became the major source for China. The increase in annual FDI was the fastest in China in 1990s. During this period, the growth was $37.5 billion in 1995 to $3.5 billion in the early 1990s. This makes a ten-fol increase. In between 1995 -2009, annual FDI level was doubled. This capital is used efficiently by China and hence has been able to contribute to the economic growth. (Wu, 2011; Roett and Paz, 2008) It has been seen that much of foreign domestic investment in China goes into export and manufactures which includes export like consumer electronics. Several case studies reveal that the gain in productivity has been one of the major cause in this huge rapid growth, economically since the implementation of the reforms. Taking an example of an International Monetary Fund (IMF), which concluded that the growth in productivity was the most significant reason for china’s economic growth? This study shows us that during 1952 – 1978, the accumulation of capital accounted for 65% of output growth in China, whereas the input growth for labor and productivity was 17% and 18%. Just the opposite happened during 1979 – 1994 (this was the period when economic reform in China took place), growth of productivity was nearly 42% of the economic growth output whereas the labor and capital inputs was 58%. (Roett and Paz, 2008; Blankert, 2009) Resources were reallocated due to which productivity had increased in economic reform of China. This took place in areas where the control was under the governance of the central government like trade, agriculture, and services. Reforms in agricultural sector boosted production. This also realized the workers for pursuing employment in actions where the marginal production is high. (Wu, 2011; Roett and Paz, 2008) The rise in economy in China happened to have strengthened the relation of U.S. – China. Total amount of trade went up from $4.9 billion in the year 1980 to an approximate value of $343 billion in the year 2006. According to the report given by the U.S. government, China has become the 2nd largest as a trade partner wise, 4th largest in the field of export and lastly the 2nd largest import sources. Chinese imports are inexpensive and this has increased the purchase power of the U.S. consumers. The companies of U.S. in manufacturing department have taken many extensive operations for China in accordance of selling their products in this booming market of China. This has also added on take labor of low-cost for exporting goods. ( Leiva and Medrano, 2007) Here the question arises as to be it possible for China to surpass U.S. in future, where the power is economic. This is a question to worry about. This is also acting as a threat to the supremacy of the U.S. in terms of economy. The economic supremacy of China in near future might dominate the political supremacy of the U.S... The policy maker of U.S. are now worried over china’s economic supremacy. It is viewed concerning relative decline of America. It is growing concern to see the large deficits in U.S. trade, which has risen from 10.4 billion dollars in the year 1990 to an approximate value of 232 billion dollars in the year 2006. Many analysts see this as a dangerous indicator for China that it has been using unfair trade means like subsidies in domestic products and currency which are undervalued. China aims to flood the market of U.S. with goods of low-cost which leads to the restriction of export by U.S... This practice by China has threatened jobs, living standards, and wages for the Americans. ( Leiva and Medrano, 2007) It is just like doing astrology; the analysts feel that China is the only capable country to replace United States as world’s largest export and economy. It is in this area where we focus China’s ride in economy is America’s decline. Various U.S. economists view the imports by U.S. from China is a threat. (Wu, 2011; Roett and Paz, 2008) China has a chain of labor with low-cost and many analysts have seen this factor as threat acting dangerous for manufacturing units in U.S... This prevailing condition has led plant relocation for China, loss of jobs and stagnancy in U.S. wages. The condition might worsen the situation if China begins its manufacturing in more technically sound products, which may directly compete with the U.S. made products in the domestic firms. The statistics given by BLS on loses of jobs, provides possibility on employment effective with the basis of trade in China. In early 2004, BLS collected data of loses in jobs owing transfer of work outside U.S... These are the data of loses in gross job and have shown that throughout 2005 such small-scale layoffs have occurred. The scale was 3000 – 5000 numbers of workers present per quarter or 12000 – 20000 annually. The representation is 2.0% is on the total layoffs seen during each quarter. There is a small negligible share of U.S. of the total labor force was 149 million more. (Wu, 2011; Roett and Paz, 2008) The trade has increased like anything and the impact of it along with economies of low wage like China might give rise to a net negative result. It does have some adverse effect on the net employment in few trade sensitive areas of economy. The problems related to U.S. in manufacturing sectors are cited as consequences due high tide Chinese imports from China. Goods that are manufactured are very important in case of international trade in U.S. as far as overall economy is concerned. This makes up to 80% of the total international trade made in goods but this is only 18% of GDP in U.S... This is true that these factors will affect the trade internationally in manufacturing sector than in wider economy. (Roett and Paz, 2008) There are certain negative consequences for rapid growth in China’s economy like the rising demand for raw materials and oil (this drives high their prices) and the ever-increasing pollution (which might give rise to global impact). China also lacks an effective and proper intellectual property rights (IPR) with enforcement regime. However, the access to for products related to IPR forced in IPR piracy in China. Such piracies do damage the good will of China for a market related to IPR like software and music; these industries are affected by export of China’s pirated products. ( Leiva and Medrano, 2007) There are some diplomatic and political implications in China after this rapid growth. Recently we came across Li one of the best Chinese organization who made deals just to purchase bonds of European government. This bond said that one could buy European products and invest them in European countries. United state fears the fact that China might take this market form their hand too. The increase in the economic clout shall now be used by the Chinese government just to drive away the wedge in between the allies of trans Atlantic. In fact, the technique, which Beijing is applying against U.S. by taking on Europe, is nothing new as such. China has been shifting its purchases of the jetliners from America to the Europeans. Airbus is an example of pressure created China on the policies taken up by America in relation to Taiwan. If the role of Chinese government does increase worldwide, this will help the relationship get deeper with the Europeans. This will follow up with some high voltage pressure from Beijing in EU to lift embargo on various sales of arms. This embargo was imposed after the Tiananmen crackdown politically in the year 1989. (Roett and Paz, 2008; Blankert, 2009) The economic growth of China has helped the west to convince them that within a few year China will become the world super power. United States and the global structure are threatened by the rising revolutionary power of China. Another vital point, which one should keep in mind, is that nationalism will drive China in pieces of clashes with that of United States if U.S. denies sharing the power or the leadership which China deserves. There are scholars who do fear that democracy in some situation will unleash a strong feel of nationalism. It is the popular nationalism, which might make China, aggressive towards United States. (Roett and Paz, 2008; Blankert, 2009) Conclusion: The rate at which Chinese economy is growing, it can be said with no doubt that in future China will overtake USA in terms of its economy. Thus China is a real threat to USA. Not just because, China will become the economic super power, but it will also command political supremacy and it may use its diplomatic power to move against USA. There exists a huge gap in political ideologies of China and USA and if China refuses to share its supremacy with USA, then it could work against the interests of USA. China may even use other nations through its diplomatic relations and political and economic power to work against USA. References: 1. R. Edward Grumbine. “China's Emergence and the Prospects for Global Sustainability China's Emergence and the Prospects for Global Sustainability.” BioScience, 57:3 (2007): 249-255. 2. Guoguang Wu. “China in 2010.” Asian Survey, 51:1 (2011): 18-32. 3. Jan Willem Blankert. China rising: will the West be able to cope? : the real long-term challenge of the rise of China. (World Scientific, 2009): 10-35. 4. Riordan Roett and Guadalupe Paz. China's expansion into the western hemisphere: implications for Latin America and the United States. (Brookings Institution Press, 2008): 5-40. 5. Orlando Caputo Leiva and Marlene Medrano. “The World Economy and the United States at the Beginning of the Twenty-first Century” . Latin American Perspectives, 34(1)The Crisis of U.S. Hegemony in the Twenty-First Century (2007): 9-15. Read More