The Peoples Republic of China - Term Paper Example

China is the world oldest civilization with over four thousands years of existence. The nation has grown tremendously and is currently the most populated nation in the world. The socialist nation has suffered through centuries of poverty. In the 1970’s the Chinese government realize that the population headcount of China had reached an uncontrollable amount and serious measures had to implement to ensure the long term survival of the Chinese empire. The excessive population was deploying the resources of China and hindering the possibility of an economic reform to guide the country in the path towards success. In 1979 the government passed a law limiting the child births to one per matrimony (Hesketh & Lu & Xing, 2005). To put the Chinese overpopulation in perspective the 1.3 billion residents of China are four times more people living than in the United States in a geographical region of approximately one-third the size. After finding a solution to decelerate the population growth the nation was in dying need for a new economic platform to make the dream of the Chinese people of obtaining a higher standard of living a reality. The events which initiated in 1979 started one of human history’s greatest success stories: the economic rise of the People’s Republic of China. Country Profile The largest population in the world enjoys a life expectancy of 72 years of age (CultureGrams, 2007). Over 50% of the population works in the agricultural a statistic that is very health in comparison with the great dependency in agricultural jobs to sustain the economy. In China the official language is JIN. In the public school system which has nine primary grades the children are taught to read and write JIN, but in the streets of China there are hundreds of dialects spoken in different regions across China. Two Chinese literate persons may not be able to communicate with themselves verbally, but can always communicate in written form. The most practice religion in China is Buddhists while other religions practiced include Christians, Muslim, and Taoists and Muslim (Country Insight, 2007). The Chinese people are loyal to their families and respect figures of authority and the elderly. The general values of the Chinese are loyalty, hard work, sincerity, education, and helping others. Chinese are sensitive to bodily expressions and gestures. A tradition such as kissing in public is seen a vulgar act not accepted by mainstream society. These types of tendencies are beginning to change in the 21st century China. The internet is a booming business in China and more and more people are getting online. China has more inhabitants in its land than the entire current online community of approximately 1.1 billion people (Plunkett Research, 2007). As more Chinese integrate into the cyber-world their old traditional views will seize to exist as they are with the younger generation. China is becoming a hybrid socialist-democratic nation right before everyone’s eyes without them even realizing the change is occurring. The political leader ruling China is a communist called Hu Jintao who holds the position of president of China. Hu Jintao is a free thinking innovative mind that the will of using new imaginative liberal economic and social reforms to transformed China from a struggling third world nation, into a the most powerful emerging economy in the world which imposes a threat to both develop and developing nation since it economic system allows it to compete in both the light manufacturing and the knowledge economy. Mr. Jintao used his negotiating power to influence and persuade Chinese Congress to adapt a series of innovative reforms and policies to change China. The reforms the country implemented included deregulations, eliminate, exports / imports, promote the private sector involvement and lower taxes. The major goal was to bring foreign investment into the nation by offering a new business framework, improved infrastructure and a proactive government there to serve the needs of the business community and the residents of China. Evolution of the Chinese Economy – A capital injection Prior to 1980 China was a country of large mass and a huge population struggling to barely being able to feed its people and cover its basic necessities. The economy was run with businesses which were centrally control by the government in a closed system with a mainly agrarian economy with a lack of innovation and diversity into different markets. The Chinese economy followed an industrial model which emphasized manufacturing operation whose goal was to become the world’s largest manufacturing hub in the world. The economy needed a new capital injection which the government at the time could not provide since there was a lack of existence of private sector in closed governmental control business environment. The money and other resources needed would have to come from abroad. The government opens its doors to foreign investment funds to be injected into the economy to spark growth. This important initiative as well as policy changes, reforms, incentive programs, social acceptance of new plans and other factors help start the transformation of the Chinese economy. The foreign investment flows started to be injected the new semi-open Chinese economy in 1979. During the first four years after the strategy was in place foreign investors were limited since China was new to it and was still creating the legal, regulatory, incentives plans as well as building its infrastructure in order to become a more attractive site for investors from abroad. One of the first companies to establish themselves in China was the electronics company Motorola. The only accepted foreign expansion method this company chose to enter China, which was the only strategic option companies could choose to gain access to the Chinese marketplace was a joint venture arrangement in a state owned enterprise. A joint venture is creation of a company that occurs when two companies join forces in order to create a new legal entity in which both firms share ownership (Kotler, 2003). The government of China had a rule in place in which limited the maximum ownership a foreign firm could have in a joint venture to 49% which meant the Chinese state owner enterprise would always have control. Motorola came to China along with many other multinational companies during the 2nd stage of foreign investment movement in China which covered the years between 1983 and 1987 (Zhou & Wang, 1997). The idea was to attract as many manufacturing firms concentrating on light manufacturing such as the apparel industry while leaving the door open to many types of industries such as the automobile and other technological industries to perform business in China. The governmental initiative which sparked a growth in the number of enterprises coming to China was allowing projects to be 100% funded by foreign funds. The next state which initiated in 1987 and ended in 1991 brought major changes in the way the Chinese government set its policies and regulations. China introduced many new liberal business laws and regulations similar to those from western nations. The government created preferential policies that transformed the nation into a much improved location as an investment hotspot. These three basic stages in the 1980’s helped revolutionized the mentality of the Chinese people to new ideas as well as economic prosperity. One of the most critical elements necessary to change an economy was introduce in this decade by breaking traditions and customs in order to open the door to internationals players such as Coca Cola into the People’s Republic of China. The economic results from 1980-1990 in China were spectacular. The Chinese nation enjoyed an annual growth domestic product (GDP) growth of 9.35% (Jianwe, Shantong, Polaski, 2007). In the 1990’s China had already gain recognition from the international community as new player that brought business opportunities and a global trade partner. The 1990’s was a period for China in that opened the markets further both internally and externally. Greater economical reform followed along with further policies assimilating an open economy. The investor’s funds from foreign sources had been channel mainly for three industries in the past: energy, basic materials and transformation. The reform open the gates for foreign investment to be moved to other areas with governmental incentives to be offered in investments in agricultural, infrastructure, communication, energy and material industries. The foreign funds and private joint ventures entering China could now diversify their lines of businesses to previously restricted segments such as Chinese financial markets. All the efforts exterted by the government were geared and sparked by the new policy of open the markets of China and allowing the free market to take over the economic activity throughout the different industries in the country. China’s prominence in economic affairs and its allure for investors was a combination of many factors. One of the key success factors for China that provided an incredible incentive for companies around the world to come to China to establish business is its incredible low wages for experienced trained laborers. The average hourly salary in the People’s Republic of China is 95% less than in developed nations such as the United States or the European Union ((People’s Daily, 2006). Old constraints to doing in business such as the inability of foreign firms to performed business with the domestic Chinese market were vanished by president Jintao political leadership to accommodate the economic policies to meet the needs of the users and stakeholders of the economy. China hay employed the used of preferential business zones to locate its foreign joint ventures in certain industrial areas. China extended regions where international firms could establish themselves by increasing the industrial sites as well as the spatial regions classified as preferential zones. Taxing policies was another import fiscal strategy used to attract investors. After April 1, 1994 the Chinese impose duty rates fell from 35.9% to 23% (Country Watch, 2007). Other important domestic reforms that came during this time period included deregulation of financial services, privatization of state-owned enterprises and elimination of the absolute control state-owed enterprises had over the imports and the exports in China. The economic results from 1990 to 2000 for China was a yearly economic growth of 10.6% (Srinivasan, 2006). China’s Entrance into the World Trade Organization (WTO) China had endured two consecutive decades of double digit growth by following a western economic growth model made possible by enormous amount of foreign direct investment and corporate funds that had impact in the economy. The country needed to gain international credential in order to entice greater intercontinental trade across the world as well as further increase the amount of foreign investment funds coming into the new Chinese economy. The solution was gaining entrance into the World Trade Organization. For years the WTO had negated China access into its organization due to its monopolistic business practices. The WTO promotes free trade among member nation as well as protects the rights of nation to fair and legal tariff practices. In situation of international trade conflicts the WTO is the governing body that decides any disputes. China gained member into the 151 member organization in the year 2001 (Wto, 2007). The World Trade Organization accepted China into the alliance of nations under the condition that China could no longer obligate foreign companies to form a joint venture with a Chinese state owned enterprise to gain access to the Chinese marketplace. Multinational corporations could choose their desired strategic expansion option which now includes the alternative of fully owned subsidiaries which eliminated the necessity to have a SOE as intermediaries. The impact of the new business law immediately changed the composition of corporate structures in China. Within 2 years joint ventures had diminished to less than 30%, a figure that has dwindle to less than 10% by the end of 2006 (Wiseman, 2006). The new rules were extremely effective at skyrocketing foreign investment into China. In 2001 the amount of foreign investment that came into China’s economy was $509.7 billion dollars, a figure that rose to $851.2 billion by 2003 which represents a 67% increase in a two year period (The Rise of China, 2004). The government may be accommodating the needs of the investors, but China also is covering the needs of the nation of acquiring technological expertise, knowledge and the capital make major equipment investments that create production and as a consequence greater economic activity. Since the ascension of China into the World Trade Organization the economy has created 13 million new jobs (Jianwe, et. al., 2007). The Chinese economy in the 21st has become a powerful oiled machine that will certainly reach the conversion stage of changing from a developing nation into a developed nation and eventually the biggest economy in the world. China through its economic run which started in 1979 utilized the inflow of governmental funds being changed to the multinational and national companies in order to invest in internal infrastructure to expand its energy capacity, build roads, create new industrial complexes and improve its communication infrastructure in order to achieve long term growth. The growth model used in China is called an organic economic model. An organic business model is used by an entity to achieve steady continuous growth over a long period of time. China accomplish so far 28 years of consecutive growth in which the average yearly economic growth was approximately ten percent per year. The future prospects for the Chinese economy are extremely bright. The Chinese people are still living in poverty, but their standard of living has improved during the last 30 years. It is not an easy task to support such a large human head count in relatively small region of land. The amount of Chinese inhabitants is 355 Chinese per square mile of territory. The greatest thing that the economic transformation brought to the Chinese people is hope of a better future for the next generations. China currently controls more than half of the light manufacturing in the world. China produces 90% of the shoes sold in the United States market (Nike, 2007). The Chinese economy has improved significantly in every aspect. Appendix B illustrated different benchmarking indicators of the Chinese economy. The gross domestic product per head in China in 2007 was $2500 a figure that represents an increase of six times the GDP level of the year 1990. China use to be dependent a lot on the agricultural sector to ride the economy. Back in 1990 the agricultural sector represented 27.1% of China GPD. In 2007 that figure is down to 11% agricultural dependency. The manufacturing industry represents nearly half the economic activity of China. The long term prospects are good for China. It is forested that by the year 2040 China’s economy will be bigger than the United States economy. The current federal poverty line lies at around $18,000 a year. In terms of nominal income per head China will reach that figure by the year 2012. Before the year 2020 China will officially be reclassified as a developed nation, instead of a developing nation. Economic growth in the People Republic is China is expected to continue to be achieved at a steady 9% for the next 20 years. Change is process that takes time to manifest itself. China is civilization that has been around for centuries. Being a five thousand year old civilization means that a lot baggage is being carried from the older generation in terms of traditions and a way of doing things that to them must be followed forever. In the 1970’s the government of China under the political leadership of ______ decided that China could no longer follow the path and the ways of the past. Reforms were instilled in terms of economic and social matters in order to start a process towards economic recovery and prosperity the Chinese people. China was dug in an economic hole that needed serious changes, patience and time for it to heal itself. The government played its cards correctly and systematically brought change during a 20 year period which was officially celebrated with the entrance of China into the World Trade Organization in 2001. The Chinese people look forward towards the future. In 2008 the Olympic Games will be celebrated in Beijing, China. This was a great accomplishment for a nation which a few decades ago was seen as a dessert of economic activity which had no hopes of landing an event of this magnitude. As China moves forward into further integration its economy into the status of a world power the nation must keep in mind that along with prosperity comes responsibility. Tough ethical decision will come to China in matter such as environmental issues and human rights movements. China is still officially a communist state, but they have changed their ways and their business practices are very liberal and open minded now. The Chinese success was achieved through hard work, perseverance and a focus to improve the nation as a whole to bring the maximum mutual benefits to the entire society. China is on the rise and its residents and its residents and the future Chinese generation will reap the benefits that have been harvest during the last 30 years. \ References CultureGrams (2007). Country Profile: China. Retrieved January 3, 2008 from CultureGrams database. Country Insight (2007). Country Profile: China. Retrieved January 2, 2008 from Country Insight database. CountryWatch (2007). Country Review: China. Retrieved January 3, 2008 from Country Watch database. EIU Data Services (2008). China. Retrieved January 9, 2008 from EIU Data Services database. Hesketh, T., Lu,L., Xing, Z.W. (2005). The Effect of China’s One-Child Family Policy after 25 years. The New England Journal of Medicine, 353. 1171. Jianwe, H., Shantong,L., Polaski, S. (2007). China’s Economic Prospect: 2006-2020. Carnegie Papers, 83. Retrieved January 8, 2008 from http://www.carnegieendowment.org/files/cp_83_polaski_final.pdf Kotler, P. (2003). Marketing Management (11th ed.). New Jersey: Prentice Hall Upper Saddle River. Nike.com. Retrieved January 7, 2008 from http://www.nike.com People’s Daily Online (2006). Retrieved January 2, 2008 from http://english.people.dom.cn Srinivasan, T.N. (2006). China, India and the World Economy. Stanford University. 2. Retrieved January 2, 2008 from http://scid.stanford.edu/pdf/SCID286.pdf The Rise of China (2004). International Construction Intelligence, 16(5). Retrieved January 6, 2008 from http://www.icoste.org/roundup0405/HanscombeChinaMeans.pdf Utexas.edu (2007). Maps of China. Retrieved January 8, 2008 from http://www.lib.utexas.edu/maps/middle_east_and_asia/china_pol01.jpg Wiseman, P. (2006). U.S. Companies Profits Take Off in China. USA Today. Retrieved January 5, 2009 from http://www.usatoday.com Wto.org (2007). What is the WTO? Retrieved January 6, 2008 from http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm#factfile Zhou, Q, Wang,B.Q. (1997). Entering Motorola Beijing, Inc. Journal of Economics & Management, 5. 22-38 Appendix A: Map of China (Utexas, 2007). Appendix B: China Economic Indicators Indicator 1990 2007 Gross Domestic Product $355.8 $2510 Agricultural % GDP 27.1% 11% Industrial % GDP 41.3% 49.6% Population 1143.3 million 1323.1 million Share world GPD 5.6% 15.9% (EUI Data Services, 2008). Read More