Chinese Economy: Issues and Policies - Assignment Example

Running Head: Chinese Economy: Issues and Policies Chinese Economy: Issues and Policies of the of the Chinese Economy: Issues and Policies China is everywhere these days. Powered by the worlds most rapidly changing large economy, it is influencing our lives as consumers, employees and citizens. Chinas miracle economy, though largely initiated by Deng Xiaopings market reforms in 1978, has resulted because οf the current globalisation era in which barriers between nations have been reduced while economies have become increasingly converged leading to increased movement across nations οf trade, investment, technology, finance, and labour. By every measure, Chinas economy is growing rapidly. In 2003, Chinas GDP was $1.4 trillion. By that measure, China was the seventh-largest economy in the world. The economy οf the United States is still by far the worlds biggest and with a 2003 GDP οf $10.1 trillion it is seven times the size οf Chinas. Chinas seventh-place ranking may be too low however, as the large underground economy and purchasing power parity are not taken into account. Since China set about reforming its economy a generation ago, it has grown at an official rate οf 9.5 percent. In Latin America, which is often seen as Chinas rival in low-cost manufacturing, economic progress over the last quarter οf a century has been, on average, worse than it was in the region during the Great Depression. China has been able to grow at such a rate over these years because its economy has been heavily favoured by the globalisation process, particularly in the fact that the world keeps feeding it capital. The Chinese governments responsiveness to the process οf globalisation saw the implementation οf a series οf widespread structural reforms beginning in 1978. Foremost οf these were the de-collectivisation οf the agricultural sector and the implementation οf the Special Economic Zones (SEZs). Chinas movement from an agrarian based economy to a more manufacture-, services- oriented economy typifies the response οf many nations to the increasing pressures οf globalisation, and it is thus that China has facilitated its integration with the world institution. Special Economic Zones were created to take advantage οf their geographic proximity to overseas Chinese communities such as Hong Kong, Taiwan and Macau and for their vast overseas economic connections. Chinas growth and development are very dependent on the SEZs which are dominated by foreign investment and technology. Brazils economy can be used as an indicator οf the impacts οf Globalisation much the same way as China has been. Unlike China, Brazils political background is not a socialist one, nor is its current form οf government Communist. Brazils market economy is the most important and integral part οf the emerging region οf Latin America, which is second in size only to the emerging region οf East Asia. Despite Brazils relatively small population when it first began opening its economy to the world market its goal was to become self sufficient. In the process however Brazil managed to become more dependant upon, and more influenced by, the economic state οf other countries then ever before. Brazil began its integration into the world market much earlier then China and in the two decades following 1960 Brazil was host to excellent economic growth rates οf 6% and 9% per annum respectively. Following a multitude οf external shocks Brazils Gross Domestic Product per capita growth rate has fallen to a mediocre 2.5% per annum in the decade οf 1985-1995 and a meager 2.1% in the decade past. Compared to Chinas robust growth in excess οf 8% per annum it appears as though the Globalisation οf Brazil must have taken a wrong turn at some point. Prior to globalisations impacts on China, the nation was among the poorest in the world, with high infant mortality and low life expectancy. Economic growth in China, as a result οf globalisation and the governments subsequent policies to promote growth, has encouraged economic development. Since 1978, the average Chinese income has quadrupled and 270 million Chinese have been lifted out οf poverty. In 2001, Chinas HDI was 0.721, up from 0.521 in 1975. The Chinese have learned that capitalism is an exercise in creative destruction, to repeat the famous expression coined by the twentieth-century economist Joseph Schumpeter, and despite these statistics, Chinas economic development still has along way to go. Economic development has heavily favoured the Eastern Chinese provinces where the SEZs are located and where the worlds transnationals situate themselves. 47 % οf the population live on less than $2 a day and rural per capita incomes are, for example, well below those οf Mexico and most οf Latin America. The general HDI index in 1997 for Tibet was 0.452, well below that οf the Eastern provinces highlighting the vast disparity between the eastern and western provinces οf China. Such inequalities amongst sectors οf a population can lead to disastrous effects, and the Chinese government is now faced with the challenge οf developing rural and remote areas before hostilities begin to progress to political instability. Chinas integration into the world economy has not been without consequence for the structure οf its economy and its overseer regulatory authorities. New strategies have had to be employed by the government for macroeconomic management, with authorities now using the financial sector much more extensively to maintain control οf growth through interest rates, through the buying and selling οf government bonds. This is yet another way in which globalisation is steering the Chinese economy toward a more market-based system. Globalisation and its motivating forces have proven to be beneficial for the Nigerian economy in terms οf GDP. The real growth οf the 4 years between 92-96 was over 5%. While inflation dropped from 60% in 1994 to 17% in 1997. In 2003, Nigeria recorded an inflation rate οf 13.8% which although is considerably high for an economy, shows signs οf improvement from the past. In 2003, the GDP (in terms οf Purchasing Power Parity) was $114.8billion and it recorded a real growth rate οf 7.1%. Although this is good in terms οf growth, when considering the total sales οf the Royal Dutch Shell Group (which makes up ½ the revenue which Nigeria receives from oil), the GDP is less than the total sales ($128billion compared to $114.8billion). The heavy external debt burden and the unsustainable debt service obligations pose an obstacle towards the development οf the country in both social and economic terms. Public debt accounts for 28.6% οf the Gross Domestic Product at $31.07billion. There has been a decline οf Official Development Assistance (ODA) which has previously brought meaningful improvements to the quality οf life. Currently, Chinas growth is trade driven. This was made possible by the liberalisation οf trade beginning with the establishment οf SEZs along the south-eastern coastlines οf China and the open door policy. Chinas successful integration into the world economy, symbolised by its accession to the WTO in 2001, has allowed Chinese firms access to previously inaccessible international markets. As Chinese labour is cheap, and productivity is increasing due to technological exchanges with the developed world, Chinas level οf international competitiveness is rising. Thus, Chinese firms have been able sell a greater volume οf g/s, evident as 2000 saw exports rising 27.8% to US$ 249.2 billion, whilst imports rose 35.8% to US$ 225.1 billion. The areas in which Chinese exports have become most competitive (areas in which China has a comparative advantage) include coal, processed food, animal agricultural products, textiles, clothing, building materials and crops. These industries demonstrate Chinas strong focus on labour-intensive manufacturing activities, though the increased technology transfer facilitated by globalisation is allowing China to better utilise capital equipment and thus further increase its productivity. The majority οf Chinas trade is with countries in the Asian region, with around 65 % οf its imports sourced from the region and around 50% οf its exports sold in the region. Europe and the US represent other major trading partners. Many economic reforms beginning in 1978 have allowed China to benefit from the globalisation οf trade. These include the implementation οf the Special Economic Zones which have enabled the worlds multinationals a place in which operate where low tax rates and one οf the cheapest and most advanced labour forces in the world give China a comparative advantage allowing it to benefit in increasing trade. References Anderson, K. (1990), Changing Comparative Advantages in China: Effects on Food,Feed and Fibre Markets, Paris: OECD in English and French (and Beijing:Economic Science Press for the State Planning Commission, 1992 in Chinese). Anderson, K., Y. Hayami and others (1986), The Political Economy οf AgriculturalProtection: East Asia in International Perspective, Boston, London and Sydney:Allen and Unwin (also available in an expanded Chinese language editiontranslated by F. Cai, Tianjin: People’s Publishing House, 1996). Lardy, N. 2001. Integrating China in the Global Economy, Washington, D.C.: BrookingsInstitution. Rozelle, Scott. "Stagnation Without Equity: Changing Patterns οf Income and Inequalityin Chinas Post-Reform Rural Economy" The China Journal 35 (January 1994):63-96 Sicular, T. "Redefining State, Plan, and Market: Chinas Reforms in AgriculturalCommerce." China Quart. 144(December 1995):1020-46 Read More