Introduction to Chinese Culture - Research Paper Example

 Introduction to Chinese Culture Introduction Economic reforms define the processes taken by a country in the changing the economic system from state-controlled to market control as a basis for benefiting from international integration. Economic reform offers substantial benefits to the country though there are challenges in the process including resistance to change by the stakeholders and the lack of a strong leadership that may hamper the achievement of economic reforms in countries. The benefits of economic reform include augmented standards of living for the people and the growth of the economy. The study aims at using Doug Guthrie’s book, China, and Globalization, in providing explanations for three policies undertaken by the Chinese government in driving economic reforms. Guthrie attributes China’s economic development to three key policies that have been monumental in ensuring China engages in the global economy through both internal and external operations as explained in the exposition of the policies in the proceeding sections of the paper. Export-oriented coastal development strategy policy According to Guthrie, the export-oriented coastal development strategy enabled China became the third largest trading economy in 2004 with trade totals of $ 1.16 trillion (Guthrie, 2009). The policy also has been monumental in allowing for increased foreign direct investment (FDI) and liberalization of the internal markets allowing for access to new technology and understanding of management practices from developed countries. The creation of an export strategy was done through making construction of new national and international institutions The Chinese government created special economic zones including Pudong, Zhongguancun, and Shenzhen allowing both international and domestic firms access tax incentives among other benefits for specific types of investment in China. The special economic zones were established in 1980 in Fujian, and Guangdong provinces allowing for augmented FDI and expand foreign trade under the leadership of Zhao Ziyang (Guthrie, 2009). The coastal development strategy allowed for autonomy in export trade by the coastal regions areas including Fujian, Guangdong, Guanxi, Hainan, Hebei, Jiangsu, Liaoning, Shandong, Beijing, and Shanghai. The policy also allowed China to solve unemployment of rural surplus labour and provided income for industrial enterprises. The success of the coastal development strategy is evidenced by the growth of China’s export economy by 27% between 1988 and 2005 with 26% growth of imported goods. In 2005, exports were $761 while imports were $660 billion allowing for $102 billion trade imbalance in favour of China depicting the high benefits accrued from the coastal development strategy. The transformation is evident from the coastal development strategy including making China a main producer of goods in many sectors, allowed for cash inflow to China, and resulted in internal growth in manner sectors. China adopted trade and export strategies as part of the export-oriented policy resulting in the achievement of increased exports. Claims of China being a closed nation to foreigners is not true owing to increased foreign trade between China and US while decreasing trade between US and other E4ast Asia nations owing to settlement of Taiwan and South Korea production centres in China. Other reasons are high foreign trade in China compared to Japan within same development time and that a quarter of top exporters in China’s seaboard are from United States. These exporters include Dell, Wal-Mart, and Motorola that produce cheaply in China and export globally gaining high profits augmenting stock prices. Significant decentralization of decision-making by the China government Several impacts of the decentralization of decision-making include increasing competition among localities and providing incentives for development for local officials. China government turned from an economic decision maker to macroeconomic policy maker. The passing of the Joint Venture Law in 1979 allowing for foreign firms in China allowed for increased competition and the development of enterprises (Guthrie, 2009). Bankruptcy law, employment regulations, creation of rights for enterprises, and the passage of the company law allowed business to build new corporate structures and standardized decision-making process in companies reducing political intervention in decision-making. In mid-1990’s, the Chinese government defined its role in the economy as guaranteeing for indiscriminate treatment of all enterprises and creation of equal market competition. Shanghai and Shenzhen Stock Exchanges also paved the way for the achievement of a significantly reduced government control of the enterprises in the economy allowing for market forces and competition to reign in the market. The overall effect of the changes made in the economy through decentralization of decision-making includes rapid non-state sector growth and transformation of the state sector to augmented competitiveness. Autonomy of organizations operating within China has increased resulting in decreased reliance on the government system in business improving the productivity, competitiveness, and profitability of both state and private enterprise in China. Economic decentralization occurred through tax and fiscal reforms allowing the transfer of economic decision-making power from the state to localities. These policies include 1980 fiscal responsibility system providing the provincial government power to collect taxes and share with the central government. The impact was an incentive for the local governments to collect more revenue and income from localities assets increasing revenue generation. Local governments were also tasked with social policies and economic activities allowing for them to cater for social security, social welfare, unemployment insurance, 70% education expenditure, and between 55 and 60% healthcare expenditure. The effect is an increased involvement of local government in business affairs and economic activities that resulted in TVEs development in China in 1980’s and 1990’s. Local governments formed enterprises and formed corporate mechanisms of governing them. Local governments were empowered to deal with foreign enterprises and had authority to relax rules on foreign exchange balances, among other policies related to FDI allowing for stable, cheaper resources, and favourable investment by foreigners Decentralization of decision-making authority allowed managers of Township and Village Enterprises (TVEs) and State Owned Enterprises (SOEs) to be the sole decision-makers in the private and foreign-funded economy. Reforming of public industrial organizations and allowing the growth of a private economy The policies that allowed for the reform of the public industrial organizations include allowing the SOEs (State Owned Enterprises) to sell above the set quota and keep extra profits giving them an incentive to operate as businesses in the dual track system. In 1992, laws, rules, and institutions were directed at a market economy phasing out the dual phased system resulting in the restructure of SOEs to operate as market enterprises despite being state owned. State-owned organizations can be in a position to operate as a business organization owing to the changes in macroeconomic policy resulting in access to more revenue. China made use of property rights to ensure that state-owned firms operated as private firms but retaining state-owned status with SOEs and TVEs operating like market enterprises. The changes in the state-owned sector allowed for the decline of the percentage of the state-owned sector in the total GDP with the private and foreign-funded enterprises making 52% and SOEs 18% of industrial output in 2004. The contribution of SOEs fell from 80% of China’s GDP to 15% in 2004 showing the high growth of the non-state forms despite the reforms made to the state-controlled sector over the reform period. SOEs play a monumental role in the China economy owing to their control of employment and social welfare and domination in communication, power, steel, financial services, and petrochemicals. SOEs account for only 2% legally, but many firms operating as corporations, private, and limited liability have shares amounting to 70% owned by the state depicting the ability of the China government to reform SOEs while allowing the private economy to prosper without much interruption. Property rights in China allowed for the formation and thriving of private enterprises wholly owned foreign enterprises (WOFEs) and jointly owned enterprises through stating their rights and obligations. Motorola and Hangzhou Telecommunications Factory signed WOFE-agreement allowing the factory to benefit in terms of revenue, transforming the management, learning on international market participation depicting the reforms that aided global participation. Enterprise reforms that favoured the development of the private sector include the focus on accountability and meeting international standards. Emphasis of the reforms on the rule of law, legal accountability, and adapting to the rules of the global market allowed FDI to drive SOEs and private businesses to further growth. The market economy in China allows for the transfer of knowledge from the different enterprise types enabling the development of private enterprises through sharing knowledge with foreign enterprises. Administrative officers in China provided private, SOEs, and TVEs with private support and monitoring allowing for success of the reforms in China. The case of “The Shanghai Kang Hua Meat and Foods Company, exemplifies the role of administrative offices in providing an invaluable resource of economic reforms, advising management on implementation of systems, and development plans. Transfer of knowledge occurred through joint ventures, association between different enterprises, and interlocking directorates. This case exemplifies a transfer of knowledge from the local government to private enterprises providing them a platform for better development. The reforms on the local governments allowed for their involvement in the development of private enterprises. Conclusion The Chinese government uses three policies as a measure of achieving reforms in the transformation of a closed economy to a global economy and a major player in the global economy. These policies include the start and successful implementation of the export-oriented coastal development strategy policy that allowed the Chinese government to promote export activity and open up the economy for foreign direct investment. The second policy is the significant decentralization of decision-making by the China government allowing for the different levels of the government to be involved in business decision-making for better business environment and improving global and international business operation. The third policy instituted by the Chinese government was reforming of public industrial organizations and allowing the growth of a private economy. The effect was a success of both the state-owned enterprises and the private enterprises and allowing for partnerships between different types of enterprises for success both in the domestic and global scene. Reference Guthrie, D. (2009). China and globalization: The social, economic and political transformation of Chinese society. New York: Routledge. Read More