Current State of the Economy in China - Research Paper Example

? Economic in China Contents Introduction 3 International and Domestic Trade Practices of China 4 Foreign and Domestic Trade Policies of China 7 Reformatory Movements in China’s Foreign and Domestic Trade Policies 9 World Trade Bodies and Chinese Foreign Trade Activities 12 Chinese International Trade and Impact on International Relations 14 Impact of Developed Countries on China’s Foreign Trade Policies 17 Conclusions 18 References 21 Introduction The paper focuses on to study the economic activities of China in respect to the potential of foreign and domestic trade activities and also the policy reforms made in relation to such. Focusing first on the realm of international trade it is observed that the government of China from the period of 1990 has worked much to develop the potential of foreign trade activities in the region. The Chinese government in this respect has worked to render some potential changes in the foreign trade sector by removing some essential barriers pertaining to tariffs, and also reduced the level of monopolistic interventions of the different Chinese states. Even the foreign trade policies in relation to the export and import activities have been widely reformed by the Chinese government in terms of liberalizing the import licenses and enhancing the level of subsidies in regards to exports. Despite the large amount of liberalization promoted in the sector of foreign trade it is found that the value of taxes related to import activities countered rise which in turn disrupted such functions. However the ascension of China to the World Trade Organization happened to render large amount of changes to the government policies of the country in relation to international trade. It is observed that post ascension of China to the World Trade Organization initiated the growth of tariff rates in the field of agricultural commodities. The level of production and the range of import activities in regards to agricultural commodities were controlled through the rendering of tariff rates on the produces by the Chinese government (Gale). Again the ascension of China to World Trade Organization has also largely impacted the trade policies of China concerning the domestic trade activities. Observation made in this respect shows that the government of China felt bound to alter the subsidiary policies through not granting subsidies to companies which mainly resorted to indigenous materials for production purposes. The above fact earns evidence with the change in Chinese government policies to reduce the level of subsidies and even putting an end to such for power companies in China depending on wind power. Government of China through the reduction of subsidies hinted on the requirement of growth of import activities in such sector and thereby explicitly desired the reduction of dependence on indigenous materials. This activity is found to be impacted through the enhancement of American interference where the government of America strongly desired the reduction of the Chinese potential. American interference to alter the realm of government policies pertaining to Chinese domestic trade can be understood from the potential threat which the American government faces from growth of Chinese power. Thus American intervention is strongly observed altering the course of Chinese policy actions relating to domestic trade activities. The focus is rendered more on the energy sector of the Chinese economy which happens to render large amount of competition to the American region. Thus a fall in subsidies in the energy sector of China especially in the realm of wind energy helps countries like America to develop their potential in the international arena (Wolf). International and Domestic Trade Practices of China The trade practices of China pertaining to the domain of international trade of recent times is being widely accused for taking resort to a large amount of manipulation and adulterated activities. Developed countries around the world like United States and the European countries have in fact accused the government of China to carry out adulterated activities which are concerned with restricting the volume of exports of raw materials to foreign countries. This type of foreign trade practices is observed to gain importance in the light of enhancing the potential of the Chinese manufacturers to gain added advantage of the existing belt of resources like rich raw materials. The trading on raw materials which would help in the production of steel, aluminum and other chemical products is targeted to be reduced by the government of China thereby endeavoring to render assistance to the Chinese manufacturers working in the stated lines. Moreover it is observed that reduction of exports of China pertaining to the elements like bauxite, yellow colored phosphorus, zinc and the like happened to distort the production and manufacturing activities on a global scale. This in turn also happened to increase the level of unemployment in the related countries which disturbed the situation immensely causing the rise of depression. Again the reduction of Chinese export activities pertaining to the above minerals and products also led to the rise in the overall prices for such products enhancing the impact of global depression. China’s war with United States in regards to exports and import activities has led to causing large amount of economic loss for both the regions. On a global scale where the level of unemployment and prices of raw materials countered a rise the export activities of China in regards to the field of consumer goods and electronic commodities countered a huge fall. The economy of China which is observed to be highly dependent on monetary gains from the developed countries like United States and others countered a huge fall in terms of such foreign income. Thus to reduce the impact of boycott activities in relation to the purchase of such consumer goods the government of China felt bound to reduce the amount of duties in relation to export activities. The level of export duties was made low in the sectors relating to the exports of both minerals and other agricultural products. These activities gained incidence owing to the increased interference of the world trade bodies like the World Trade Organization. The ascension of China to the world trade body happened to enhance the regulatory aspects of Chinese foreign trade activities (Healy). The domestic trade activities of China like the international trade activities can also be further studied to understand the potential of such in contributing to the making of the Chinese economy. Domestic trade activities carried on by the Chinese firms depend greatly on the incidence of traditional and conservative forms of technology. Thus the entry of foreign firms is restricted to the Chinese soil through the Chinese government’s domestic policies requiring the foreign companies to quit their own technological expertise and take resort to Chinese indigenous means. Moreover the domestic trade practices of China are also found to largely depend on high amount of counterfeit products and services. This increased incidence on the level of counterfeiting activities happens to render large amount of economic losses for both the Chinese and foreign economies pertaining to operate in such region. Again the level of domestic trade activities carried on by the Chinese region also depends to a great extent on the rendering of unauthorized subsidies for many domestic industries thus endeavoring to curb foreign competition to a great extent. This increased dependence on both counterfeiting and rendering of unauthorized and biased subsidization weakens the performance of the foreign companies and reflects non-encouragement to foreign firms desiring to gain entry. Moreover the domestic trade activities of China are also accused of being increasingly dependent on the level of spying activities which they conduct to gain the knowledge of both the technology and skills in use by the foreign firms operating in the Chinese soil. Again the Chinese domestic trade scenario is increasingly governed by such firms which tend to produce commodities using low cost materials. These firms produce commodities in large volumes which are traded in a very low cost manner in relation to other foreign firms. The low priced commodities produced by the domestic Chinese industries happen to distort the overall trading and economic activities observed on a global scale. The Chinese economy also functions to weaken the domestic currency Yuan in respect of other foreign currencies like dollar. Through the weakening of the Chinese currency the government tends to gain the advantage of both export and import activities thus enhancing the balance of trade (Democratic Policy Committee). Foreign and Domestic Trade Policies of China The foreign trade policy of China is studied based mainly on two perspectives. The first perspective is dealt with in relation to the situation where China had not gained accession to the World Trade Organization. Secondly the change made about in the international trade activities and also the change in trade policies are also observed in a situation where China has gained accession to the World Trade Organization. It is observed that also before the period when China had not gained ascension to the world trade body the countries trade and economic policy operated in such fashion as helped the foreign firms to gain increased entry into the region. With the entry of foreign firms in the region the Chinese economy became the home ground for large amount of deposits pertaining to foreign income. However prior to the ascension to the World Trade Organization the Chinese economy largely becoming the home to many foreign firms largely started facing more amounts of competition and other significant threats curbing the independence of the domestic firms. Thus the Chinese government started depending greatly on the use of protectionist policies like rendering high amount of government subsidies to help protect the plight of the domestic firms. Further the tax and other duties were continuously increased in relation to both exported and imported commodities to reduce the growth of foreign products in the Chinese soil. This fact was strongly looked after to help sustain the market share of domestic products and services (Clarke, 167). This pattern of foreign trade policies practiced in China largely depending on a protectionist approach countered a change on its ascension to the World Trade Organization. Observation shows that where China’s ascension to the world trade body helped the region fetch large amount of foreign investment encouraging the entry of foreign firms it also helped to loosen the impact of the existing trade policies. Ascension of China to the world trade organization caused the reduction in the level of tariff rates and also led to the rise of the liberalized regime wherein foreign companies could easily carry out the export and import activities with the indigenous Chinese companies. Moreover the existing trade policies and regulations of China were being increasingly altered to suit to the global trading environment. The Chinese companies which operated previously on the protectionist approach now started facing the growth of intense competition from foreign firms. Further the movement to technology intensified industries was largely observed in the Chinese region. This was a major shift from labor intensive industries and demanded large amount of sophistication rendered in the realm of production (Institute of American Studies Chinese Academy of Social Sciences). In a similar manner the domestic trade policies of China was also revised to help the domestic firms gain more autonomy while taking key managerial decisions. The firms were encouraged to gain control while managing their own corporate positions in relation to the enhancement of their profit and sales figures and taking care of their solvency positions. Again the liberalization of the trade activities also happened to internationalize the domestic companies to gain larger markets in the foreign soil. Further domestic trade policies were also concerned with enhancement of the price regimes to help the domestic firms gain increased advantage of the liberalization policies aimed at gaining large scale competitive advantage. Further the system of intermediary markets also developed in domestic parlance in the Chinese region helping the domestic companies gain access to larger markets in different regions. With the development of the Chinese economy the prices for the commodities and services produced in the domestic sphere became more depended on the market structures. In the new market oriented economy the prices for the factors of production in the domestic scenario is calculated based on the demand and supply forces and not based on the bureaucratic rules of the region. Further the Chinese economy revolutionized itself with the emergence of different trade laws and regulatory guidelines. The ascension of China to world trade organization helped inculcate a fresh approach to the domestic trading activities in the region. The goods and services produced in China became divided into two different segments. Commodities produced for meeting basic needs were classified as ordinary products and constituted mainly of food materials. These products were further characterized as strategic materials and would be needed for maintenance of the daily needs of the society. Again for the strategic level of services offered pertaining to electricity and railways the prices were started to be determined based on market trends which was a revolution in the case of the Chinese economy (China.org.cn). Reformatory Movements in China’s Foreign and Domestic Trade Policies The foreign trade policy of China was subjected to large amount of reforms to help in the formulation of strategies which in turn would enhance the face of the Chinese economy. Major thrust of the reform movement carried along the realms of the Chinese trade made the economy becomes largely dependent on the export activities rather than depending on large volumes of imported goods and services. It is observed that before the reform movement was initiated the foreign trade activities depended more on imported products which were used solely for taking care of internal shortages. Export activities were given less dominance and were mainly conducted to lessen the bulk of domestic goods produced in the economy. Again it is found that the major chunk of the foreign trade activities was mainly controlled by the central government of the region and a small number of other statutory and foreign trade regulatory bodies defined and created within the state. The state of reforms brought about in the Chinese economy in regards to foreign trade activities gained momentum with the emergence of the Deng Xiaoping’s ministry. Reforms brought about by the meeting arranged by the committee of the then communist regime of China during December 1978 can be studied mainly on two accords. The first reform brought about by the committee targeted the decentralization of the decision making system pertaining to economic activities. The second state of reforms brought about by the committee focused on setting the prices for the goods and services depending on market trends. The second set of reforms that was brought about revolutionized the price setting mechanism both for the commercial and consumer commodities produced in the Chinese economy. Decentralization activities gained a larger influx helping local authorities gain further ground while deciding on the level of exports and imports to be conducted. Apart from local bodies the large number of industrial enterprises and manufacturing and production houses also were granted autonomy to decide on the volume of international trade activities owing to the reforms brought. Further the reforms brought about pertaining to foreign trade activities also focused on rendering huge amount of encouragement to firms engaged in foreign trade. This was made possible for the huge flow of foreign income which was previously absent. The growth of a huge number of foreign trade councils along different regions of the country was also found with the potency of the reform movements taken (Lu). Again like the policy reforms taken in respect of international trade activities the domestic trade functions of the Chinese region were also subjected to a large number of policy changes. Large scale policy changes were brought about which reformed the internal trading system of the Chinese economy. It is observed that the level of trade reforms taken help reduce the thrust of tax levied on agricultural products like wheat, rice and maize products. This reduction of tax levels on the above products was enabled through the removal of the quota system pertaining to the procurement functions and thereby helping the farmers gain more advantage of the produced. These policies gained ground mainly after the 1995 period and helped the farmers gain huge flow of income through the trading of the produces. Taxes and subsidies reduced augmented the income levels of the farmers of the Chinese region. The changes in the domestic trade policies also affected the trading polices for the cash products like soybean and other edible oil products in the Chinese region. However in contrast to the food products the level of quotas rendered in regards to the procurement of commercial products and the tax imposed on the same was found to be evidently quite low. The level of trade reforms pursued in relation to domestic trading activities helped these commercial products by reducing the level of imports in these respect. Monitoring of the import activities was constantly pursued to help protect the plight of the farmers producing such products. Apart from food and commercial products the domestic trading activities pertaining to livestock and horticultural commodities also earned the benefit of the reforms made. The period prior to the inception of the reform movement found the incidence of large amount of taxes imposed in the above sectors and also the dearth in export activities in such. Reservations constituted by the Chinese government affected the export functions of the livestock and horticultural commodities to regions like Hong Kong. Thus the flow of reform movements taken on the above scale helped the traders of such commodities gain increased advantage through the enhancement of the export regime. Similarly the policy reforms brought about also helped in the enhancement of the quality of the produced through the enhancement of large scale research and development functions and growth in the technological environment (Huang and Liu, 8-19). World Trade Bodies and Chinese Foreign Trade Activities China in the age of reform movements gradually gained ascension to the global trading bodies like the world trade organization and the Asia Pacific Economic Cooperation. Ascension of China to the world trade organization helped the country to expand its trade relations with other countries around the globe. Moreover this type of global ascensions also helped the Chinese economy to help settle trade and economic disputes while sustaining trading activities with regional nations like Japan. The ascension of China to the World Trade Organization on the one hand implied the need for the reduction of trade barriers by diminishing the level of tariff rates and on the other hand also helped the country to develop its trading relations with other countries. The Chinese region which earned the view of foreign nations owing to the prevalence of labor capital further gained the potency to expand the market for the products produced through ascension to the world trade organization. Again the ascension of China to the world trade organization also helped the country to counter the accusations made by developed countries like United States in regards to gaining space for low priced products. The ascension of China to the world trade organization would eventually help in generating sophistication to the level of consumer demand by ushering in newer technology for the production of quality products. Similarly development of the relationship with the global nations through ascension to the world trade concern by inculcating an environment of transparency would also help China in inviting the flow of tourists and thereby large amount of foreign investments. However increased amount of trade liberalization pursued through ascension to the world trading body is observed to counter a threat for the state run concerns and also for the agricultural producers. With foreign firms seeking to make an entry the Chinese government should potentially endeavor to safeguard the interests of the internal and domestic markets. The export regime of China has gained a huge momentum owing to the above ascension which was seemingly obstructed by bureaucratic controls. The same can be traced through a graphical presentation made along the period ranging from 1970 to 2002 (Rumbaugh and Blancher, 8-18). Figure 1 (Source: Rumbaugh and Blancher, 19) Again ascension of China to the world trade organization also happened to reduce the level of subsidies rendered to the state owned firms. This reduction of subsidies made the state owned firms more responsible to work for their own profits and augmenting on their production. However the growth of financial firms in China helped these units to gain more enhanced assistance to perform in a better manner. Again the development of other sectors owing to the ascension is also observed to play a prominent role in helping in the development of the functioning of the state enterprises (Bajona and Chu, 22-23). In addition to the ascension to the World Trade Organization the region of China also earned the benefit of its membership in the body of Asia Pacific Economic Cooperation. The stated membership has helped China in earning huge amount of foreign investments through enhanced import and export activities with the regional nations. Similarly the membership gained would also help the region to settle trade disputes with other Asia Pacific countries. Around 69 percent of the total import and export activities of the Chinese region is contributed by the Asia Pacific countries (Lu, 18). Chinese International Trade and Impact on International Relations The startling growth of the Chinese economy and their military power has had huge impacts on the rest of the world. Asia has been one of the main regions to have experienced this impact. Asia is the key region to have observed the impact of Chinese growth since the last decade and has also witnessed substantial and multi faceted changes in the Chinese policies with regards to their relationships with the Asian neighbors. The strategic dimension of the nation’s approaches towards maintaining international relations with Asia has been increasingly becoming an area of interest among the scholarly communities and the policy making circles. However the different views on the strategic impacts of the country’s rise on the Asia’s security and political and security future have become polarized. There are beliefs that China’s regional policies are an intentional step towards posing challenge to the United States’ supremacy in the Asian nations, and the ones who are suspicious of the long term regional interests of China (Mingjiang, “Critical issues in modern politics”). Studying international relations necessarily involves studying the power relations between the major states. However, the term ‘power’ refers to the numerous types of relationships, of which some might be dominating in relative terms while some might be under conflicts among themselves. While some others might occur in areas in which the variable sum outcome applies and where the amount of conflicts get reduced. However, it is important to realize that amount of power help by a nation does not necessarily determine the kind of policies or behavior that it would demonstrate. However, the extent of power held by a nation determines it international relations with other nations. In modern economics trade by sectors are generally seen to follow two different patterns. The first is based on the concept of comparative advantage under which a nation trades with another nation only in those products in which it has competitive advantage or has abundant resources. The economy of the United States is characterized to have high technologies, extensive land with high agricultural productivity, deep capital and expensive labor. As such, it is expected that United States would be strong in terms of exporting of products of high technology, food, grains, and also capital intensive products. On the other hand the economy of China is characterized to have cheap and abundant labor, less capital intensity, and medium productivity of technology both in agriculture as well as in the manufacturing sector. Thus it is expected that China would be strong in the export of labor intensive manufacturing products, like apparel and textiles, toys, shoes, light manufactures and also such items which have been produced under the tutelage of the foreign organizations investing in the Chinese factories. This includes the household appliances, automobile parts, electronics and tools. One can expect trade which is conducted based on comparative advantage to be unbalanced on sector by sector basis. Thus USA would have a surplus in aircrafts with China while a deficit in textiles and apparel (Lum & Nanto, “Balance of Trade by Sector”). The Chinese trade with USA has been able to generate political and economic benefit for both and have allowed for more efficient resource allocation between the nations. The rapid growth of the Chinese economy has also provided a rare opportunity for the businesses in USA for participate in the rapid and huge expanding market of China. This has improved the Chinese relations with the United States. China is also a member of the World Trade Organization (WTO), which has triggered the development of the market forces within the Chinese economy. The foreign trade and foreign investments have created dependency on the exports, imports, foreign investment and also other interactions with the world outside China, which has consequently strengthened its relationship with the United States and the western countries and have created centers of power which is outside the Chinese Communist Party and have fostered the process of social and economic pressure for democracy. A nation like China is quite significant in the world at large and also constitutes a quarter of the globe’s population. Armed with the latest of nuclear weapons it is also a member in the United Nations Security Council which makes its presence in the globe all the more important. As per the views of certain experts, globalization and other economic interests might be having an influence on Beijing’s policies towards the protection of China’s and its security interests. However, the Chinese Communist Party is determination in maintaining a political legitimacy by economic growth which has also created tension with the other nations and with emerging non Party political actors (Lum & Nanto, “The Rationale for U.S. Policy and Initiatives”). Impact of Developed Countries on China’s Foreign Trade Policies In the last few years China has been one important country to have claimed its place as one of the crucial point of trade and manufacturing activities across the globe. The economy of China has shown unprecedented growth by its national reform policies and through opening up of the economy with the outside world. This has contributed to a lot of social welfare gains and has also added impetus to the global trade at large. However, the Chinese manufacturers also confront with increasing trade frictions with the industrialized nations of the world. For example the Chinese authorities and manufacturers were presented with anti-dumping suits which were primarily initiated with the major trading partners of China. They have also confronted with pressure from Washington to revalue their currency, the RMB. Moreover they have confronted with major clashes with the United States over their protective duties on such products like furniture, automobile parts, semi conductors etc. The genre and tone of the United States trade relations have harkened back to the height of United States trade relations with Japan in the 1980s. It is also agreed that China has emerged as the main rivals of the United States in terms of their trade policies and practices. Moreover China is also likely to stay at the centre of the trade policies of the United States in the coming years. There has been growing causes of frictions in trade between China and the United States which have raised important issues with regards to these conflicts and also the future prospects and trade relations between the two countries (Zeng & Mertha, “Introduction”). China has emerged as one of the major buyers of raw materials, industrial machineries, agricultural products, and electronic components from the Southeast Asian nations. It is also a crucial source of foreign investments and also is a major attractor of tourists in the region. In spite of the worries regarding economic competition in the year 2004, ASEAN, which had a trade surplus of more than $20 billion with China decided to establish a free trade zone with the nation. This was expected to be implemented for the coming five years. From the perspectives of the major trading partners of China in Asia, the Chinese open trade polices coupled with its economic growth has triggered both competitive challenges as well as economic opportunities. Japan has been running a trade deficit with China since the year 1980. The balance of trade of Japan with that of China has shown a gradual fall from a surplus of $6 billion in the year 1985 to a deficit of almost $6 billion in the year 1990. The Japanese exports to China has shown a dramatic rise since the past few years for products like iron and steel, general machinery, electronic and photographic items, organic chemicals and medial equipments. As per the views of some analysts, the rate of Chinese imports have been coming down and its exports also are not showing any signs of abating (Lum & Nanto, “China and the Asia Pacific Region”).In spite of the trade surplus which ASEAN accumulated with China in 2005 ($19.5 billion), Chinese exports to ASEAN increased by more than 50% faster in comparison to its imports from Southeast Asia during the same time (Lum & Nanto, “China and the Asia Pacific Region”). Conclusions The Chinese economy the largest populated economy in the world is working to develop their economic activities to help expand their business across national boundaries. The country is observed to previously take resort to conservative practices along their trade spheres by augmenting the level of tariff rates and also grating subsidies to the domestically run enterprises. These types of activities happened to deter the entry of foreign nations to the Chinese soil for carrying out trade functions and opening up of foreign branches in the Chinese region. China also through the use of surplus amount of labor capital happened to produce large number of products at reasonable low prices thus taking over the international markets. Further the region of China is also accused by the companies belonging to developed nations like America to take increased resort to counterfeit trade practices which aim at gaining the advantage of the technological and process knowhow of the foreign companies. However, China later to gain the advantage of expanded market base desired to gain ascension to global bodies like the World Trade Organization and Asia Pacific Economic Cooperation. Gaining access to the World Trade Organization helped China to gain increased attention of developed economies and thus helped the country to gain expanded market on a global scale. It is because with the ascension of China to the World Trade Organization the system of tariffs gradually gained lower potential which thereby helped the international firms to gain an ease of entry. Further the reduction of subsidies in regards to the state owned enterprises though makes the situation more lucrative yet it renders stress on the latter for gaining increased competition from the foreign counterparts. Again the increased opening of the financial markets in several areas and also the development of several allied sectors in regards to gaining membership to the world trade body helped the state owned concerns to enhance their productivity potential. With the growth of transparency in the stated lines the region of China gradually earned the enhanced attention of many foreign nations which in turn helped the country to gain the advantage of increase in activities like tourism. Ascension to the world trade organization and Asia Pacific Economic Cooperation bodies helped the Chinese companies to increase the volume of exports to large numbers. Moreover the change in trade policies initiated on that accord also helped the Chinese region to render focus on rendering growth to the activities pertaining to decentralization wherein the industries and manufacturing bodies would get the advantage of deciding on the volumes of export and import volumes. The pricing decisions were also modified to take help of market trends and not depend on bureaucratic measures. References Bajona, Claustre and Chu, Tianshu. China’s WTO Accession and Its Effect on State-Owned Enterprises. April, 2004. June 15, 2011< http://www.eastwestcenter.org/fileadmin/stored/pdfs/ECONwp070.pdf>. China.org.cn. Trend of Marketizafion of Domestic Trade. November 7, 2003. June 15, 2011 . Clarke, C. Donald. China's legal system: new developments, new challenges. Cambridge University Press, 2008. 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Critical issues in modern politics. 2009. China’s International Relations in Asia. June 15, 2011. < http://media.routledgeweb.com/pdf/9780415476911/9780415476911.pdf>. Rumbaugh, Thomas and Blancher, Nicolas. China: International Trade and WTO Ascension. 2004. June 15, 2011 < http://www.imf.org/external/pubs/ft/wp/2004/wp0436.pdf>. Wolf, Richard. China agrees to end domestic wind power subsidies. June 6, 2011. June 14, 2011 . Zeng, K & Mertha, A. Introduction. China’s Foreign Trade Policy. June 15, 2011. < http://falcon.arts.cornell.edu/am847/pdf/China%27s_Foreign_Trade_Policy1.pdf>. Read More