Economics in China and South Korea - Essay Example

Economics in China and South Korea Over the last couple of years, the Asian region has undergone a significant revolution in terms of its economy. The region mostly composed of the third world countries has developed to become among the world's economic powerhouses competing with nations such as the United States of America, the United Kingdom as well as other European nations. Among the nations in Asia that have undergone economic revolution include China and S. Korea. A number of factors have been responsible for the recent economical growth in China. Among them include the political stability that has prevailed for a prolonged time, availability of labor save to mention the readily available raw materials for production and good infrastructure. Another reason as to why the economy of these two nations as well as that of the general Asian region is the availability of technology and well skilled personnel who are able to use this technology to improve production (Onyemelukwe, Pg. 265). The high population of these nations has also been a contributing factor due to the fact that it creates a large and ready market for finished goods. In economics, one of the factors that influence the demand of a commodity is the size of the population. As such, with the high population in China and S. Korea, the demand for finished goods is high (Onyemelukwe, Pg. 266). Despite the numerous similarities between the economic growth and development of China and that of S. Korea, it is imperative to note that there are some distinguishing factors between the two and hence there exist a number of differences. As a norm, the economical and political environment of one geographical region will always differ from that of other regions. This article will purpose to compare and contrast the economies of China and S. Korea. It will address the variety of factors that influence the economies of the two nations before giving a conclusion on the same. Economy of China China is one of the nations that have had the most significant economic growth over the last couple of years. Being a third world country, China has been able to grow to such a level that today it is ranked second largest economy in terms of GDP second only to the United States of America which is considered a global superpower. In addition, over the period of the last three decades, China has been ranked as the fastest growing economy in the world registering an average growth rate of 10% per annum in the last thirty years (Lardy Pg. 3-6). In addition, China has also been ranked as the largest exporter in the world and at the same time as the second largest importer after the USA. It is also imperative to note that China is ranked first in manufacturing. It has outdone the USA and has now become the largest service driven economy. Ranking on per capita basis, China was at position 87th by Nominal GDP in the year 2012. This was according to the records of the International Monetary Funds. Despite the enormous rejuvenation of the Chinese economy, it should be acknowledged that there are some parts of the country which are less developed tan others. For instance, areas located in the hinterland have experienced relatively slow development while areas at the coastal region are highly industrialized. China continues to strategize itself for further development and economic growth. One of the strategies that are guiding its development is the Xi Jinping’s Chinese Dream. Under this dream, the China government is committed to achieving “Two 100s” by the year 2049. This means, by the year 2020 which also happens to be the 100th anniversary of the Chinese Communist Party, the nation plans to have become a moderately well off community and that will denote the first 100 of the “two 100s.” then, by the year 2049, which will also be the 100th anniversary since the People’s Republic was founded, it is expected that China will be a fully developed economy. There are a number of factors that have contributed to the growth and development of the Chinese economy. Some of these factors are discussed next (Garnaut and Ligang, Pg. 281). First, the government of China took to its role the responsibility of planning the political as well as the economic system of the country. This was in the year 1949 and it was the first move towards the Chinas economic rejuvenation. In the early 1950s, the government monopolized all the foreign trade systems, it owned almost all the domestic entities and set prices for all the major commodities. In addition, it took the control of investment funds distribution such that it is the one that was allocating funds to various sectors. By so doing, the government became the major determinant of the output for major enterprises in the country. It should be noted that the amount that an enterprise invests can be used to anticipate its output and therefore by the mere fact that the government was the one allocating investment funds, it means that it also had control of the enterprises’ output. Further, it also determined the outcome of enterprises in that it is the one that was allocating energy resources and also set the level of remuneration that the employees were getting. This means the government had control over the operating costs of the business entities and hence the level of profitability. In addition, the government also took the operation of retail as well as wholesale networks. It further established the financial policies and controlled the banking system and hence the flow of money in the economy (Garnaut and Ligang, Pg. 260). This went on until the year 1978 when the role of the government in the economic control was lessened. It was during this year that the market reforms were initiated. The role of the government went down and the private enterprises were increasingly offered more control of the economy. It is from this time that the economy of China started to grow. The private sector is known to be highly effective in maintaining the economic growth of a country. The market demands increased as a result of the private sector taking control. However, the government still maintains some control in the economy as it was stipulated in the State Constitution of 1982 that the state is obligated to guide the economic development. As such, each major economic sector has to be answerable to at least one governmental organization such as the People’s Bank of China, Ministry of Finance, Ministry of Commerce as well as the National Development and Reform Commission among others. Therefore, it can be concluded that one of the characteristics of the Chinese economies is that it is dominated by the private sector, and that the private sector has been a major factor in the economy’s flourish. China is rich human resource another issue that has also played a major role in the development of its economy. The country has a high population and is among the nations in the world that has the highest number of residents. In the year 2012, it was approximated that China had a population of a whooping 1.351 billion people. This means that there is more than sufficient labor for the Chinese industries. This is a factor that increases the level of production. The industrial productivity is utilized to its full potential since there are enough people to conduct the production activities. On top of the sufficient labor supply that China boosts, the people in China are well skilled and posses technical abilities that further facilitates development. The world today has become a technology dominated place. It is only with sufficient technology and with well technically skilled human resource that any nation will be in a position to compete at the top level in the international market. With China in possession of these two factors, it has been able to muscle out most economic super powers to find its way at the top of the world’s best. Another important point to note about the Chinese economy is the fact that it is a socialistic economy. Socialism means everyone in the economy has a say and control of the organizations and the business entities. In China, people work in groups rather than as individuals. Every worker is given a chance to contribute to decision making as well as participate in the production process (Garnaut and Ligang, Pg. 270). Unfair treatment and oppression are not features of this system. Another important feature about socialism is that it also allows for capitalism but through legal processes. Capitalism is a term that is used to refer to an economic system that is characterized by trade as well as industries as the major methods of production. A capitalistic economy is controlled by the private sector whose major objectives are to make profits. Therefore, under capitalism, accumulation of capital for investment purposes is common. The markets in such an economy are highly competitive and wage labor is also common. These are the factors that have fuelled the economic rejuvenation of China and hence China can be said to be a capitalistic and socialism economy. Economy of South Korea South Korea is the other economic heavy weight in the Asian region. The nation is ranked at position 15th in the world among the largest economies in terms of nominal GDP. In terms of Purchasing Power Parity, S. Korea is number 12 in the world. South Korea is one of the Asian nations that has a well developed market and also has a high income. In fact it is a member of the Organization for Economic Co-operation and Development (OECD), an organization composed of 34 countries that were founded in the year 1961 and are aimed at stimulating the global economic progress as well as the world trade. These nations are committed to democracy and they are actively concerned with the market economy. In addition, they are committed to ethical practices and addressing any perceived problem. Further, they also address the policies of their members both at the domestic level as well as at the international level. Being the only developed nation in the Asian region that has been included among the group of Next Eleven nations, S. Korea is also known to be among the Asian Tigers. Other Asian Tigers include; Taiwan, Singapore and Hong Kong. These are developed nations and exercise freedom in both the market place and for their citizens. They are nations that have had a high economic growth rate between the years 1960s and the 1990s. They experienced significant industrialization. Today, these nations are well advanced in terms of development and economy and are among the top competitors in the global arena. For instance, S. Korea is one of the leading manufacturers in the field of information technology. In the 21st century, S. Korea happens to also rank among the fastest growing economies among the developed nations. One amazing thing about the S. Korean economy is the fact that it has grown to a very high level with little or no evidence of any natural resources at its disposal. In fact, the S. Koreans term it as a Miracle on the Han River. The country has also been a victim of overpopulation an issue worsened by its small geographical area. As a result of this problem, S. Korea had difficulties developing its internal market and so in the bid to get market for its products; it opted to adopt the export oriented market strategy. It is tis strategy that helped its economic growth and development. In the year 2012, it was ranked at position seven in the world among the largest exporters. Among the importers, S. Korea ranked position 10 in the world. The economic development of S. Korea started to achieve a significant development in the 1980s and 1990s. At this time, the GDP per capita was at the low of $2, 300. However, from the 1980s on wards, the country has advanced in its economy to an extent that by the year 201, its GDP per capita had hit a high of $30, 000. This was an enormous growth representing 13 folds the GDP figure they had 30 years before (Joo, Pg. 221). During the same time, the general national GDP increased from $88 billion to a staggering $1, 460. South Korea became the first nation to move from being recipients of ODA funds to become a donor of the same n the year 2009. With the high economic performance, S. Korea hit the landmark of becoming among the 20-50 clubs in the year 2012. This is a group of countries that have a population of over 50 million people and an income per capita of $20, 000. Unlike China, S. Korea is not a socialistic country. However, it is capitalistic. It encourages investments both local and foreign. The private sector has played a major role in the development of S. Korean economy. There are a number of private companies in S. Korea that play a very significant role in its economy among them being Samsung which is among the worlds largest companies in the field of Information and Technology. The high population of S. Korea just like in China provides sufficient labor in hence aid in production. The people of S. Korea are well trained and hence they have the technical skills as well as innovative ability. The availability of sufficient human resource coupled with their technical abilities and the ready domestic market for finished goods evidenced by the high population, have been among the major factors that have contributed to S. Koreans success and they are similar to those of China. Methodology Economics Start The success that these two countries enjoy today did not come over night or by chance. There is a long history that is associated to it. Each of the two has had its downs and ups en route to the position they are today. As it has been mentioned earlier, China is a developing country whose economic growth and development has been the fastest. Its growth can be traced from the year 1949 when the People’s Republic was established. It was at tis time that the government as well as other concerned parties started putting efforts aimed at creating economic growth. In the earlier years, the government had assumed control of most economic units in the country (Lardy 15-18). Although it might have seemed as the best move at the time, it did not have much positive to the economic growth. The government was in control of the money being distributed to the investment sector as well as controlling the costs of production and prices of commodities and consequently the performance of investment entities. The major ramification of the government control at the time was to reduce the level of inflation which was done at the expense of the private sector. The government continued being in control until the year 1978 when reforms started. During that time, the economic growth had been slow. The growth and development of the economy of S. Korea can be traced to the early 1960s. It was during this time that the then president, Park Chung Hee and his government started to lobby for the implementation of economic policies that would help the nation grow. First, ther4e were changes that emphasized on export economy as well as labor intensity in light industries. At that time, the government did not have sufficient funds to finance its industries. As a result, it highly depended on debt hence leading to debt financed industrialization. The other policies that were to be implemented were directed on the financial institutions with the major aim at reforming the currency. The government strengthened the financial institutions and at the same time introduced economic plans that were more flexible. Later in the 1970s, the government directed financial policies towards the promotion of chemical industries, automobile industries, electronics industries as well as other heavy industry (Onyemelukwe, Pg. 270). This was carried on to the 1980s and 1990s with a rapid growth being registered within that period. The economy of S. Korea during the early years was too central and most of the investments were planned by the government. This was one of the reasons as to why the economic growth had not been so rapid during those years. However, as the country moved to a more market oriented economy, the rapid growth started to be discovered in the 1990s despite the Asian Financial Crisis that had hit the country. After bouncing back from this crisis, S. Korean economic development has been exemplary and unprecedented. Economies now In the year 1978, China started implementing reforms to its economic strategies. It is at this time that the aspects of capitalism began to be introduced. The country started attracting foreign investors’. Further, the political and social stability were sought for and this favored mass production and boosted the consumer welfare as well as the employees’ welfare. The development continued until China became one of the economic super powers ranking second after the United States of America as the largest economies. The development of China is still ongoing and the aim is to achieve ‘Two 100s’ by the year 2049. It is at this time that China will have become a fully advanced and developed nation. Today China is the major competitor to the US and with its vision on sight; it is going to compete for the top spot over the US. South Korea on the other hand is also doing great at the moment. The reformation of the S. Korean economy started in the 1980s. It moved from a centrally planned economy and adopted a market oriented economy. In addition, it encouraged private sector investment and growth of industries. The reforms were maintained by President Kim Dae-Jung and by the early 2000s; the nation was already registering a growth rate of 10% per annum. Today, S. Korea is ranked 15th among the largest economies in the world and it is among the fully developed nations (Joo, Pg. 219). Conclusion The economies of the Eastern region are the latest to develop and join the world’s best. China being the most notable, it has moved to the second position only after the US and it might overturn the US to occupy the first position. Given the trends in China at the moment, there is a high possibility that it will become the world’s best economy at the expense of the United States. Capitalism has been a major actor to the development of Chinas economy, capped by socialism. In addition, the country has set itself objectives which it is keen to realize. By the time it achieves its ‘Two 100s’ objective, China could be the worlds best. South Korea is considered a fully developed nation. However, it has also been working towards maintain its advantage and try to grow further. Capitalism was also a major factor to its development. Works Cited Garnaut, Ross, and Ligang Song. Turning Point in China's Economic Development. Canberra, ACT: ANU E Press and Asia Pacific Press, 2006. Internet resource. Joo, Seung-Ho. Korea in the 21st Century. Huntington, NY: Nova Science Publ, 2001. Print. Lardy, Nicholas R. Sustaining China's Economic Growth After the Global Financial Crisis. Washington, DC: Peterson Institute for International Economics, 2012. Internet resource Onyemelukwe, C C. The Science of Economic Development: The Theory of Factor Proportions. Armonk, N.Y: M.E. Sharpe, 2005. Print. Read More