Impacts of the Rise of the Importance of China on the World Economy - Case Study Example

Impacts of the rise of the importance of china on the world economy Student name: Student number: Tutor: Date: Introduction Before the Chinese government launched the economic reforms and trade policies more than three decades ago, China maintained a host of economic policies that had failed to develop its economy (Lin 2010). After the introduction of free market policy in 1979, China’s economy gradually transformed to become the fastest growing in the world, with a GDP averaging almost 10 percent each year through 2013 (Morrison 2014). Indeed, over the last decade, China has become a leading global trade and economic power (Lin 2010). Currently, China is positioned as the world's largest merchandise trading economy, manufacturer, holder of foreign exchange reserves, and destination of foreign direct investment (Morrison 2014). Still, China has maintained several economic policies that are greatly distortive. Examples include undervalued currency and protectionist industrial policies. Within this background, this essay argues that China's economic rise has had more positive than negative implications on the world economy. Fluctuation of world prices Regarding what has been China’s global impact on global engagement and economic rise, some analysts have argued that the country’s huge consumption has affected the price of all kinds of metals, fuels and grains to high level over the last three decades (Teunissen 2003). Some economists such as Zweig (2008) have argued that around a fifth of the world’s population, the country consumes more than 50 percent of the cement produced. Additionally, its importation of the various natural resources has grown more rapidly compared to its springing economy (Cox 2012). For instance, shipment of the iron ore has increased by averagely 27 percent annually over the past half a decade. In return, Australian mining companies, such as Boart Longyear in Australia have benefitted from the high boom. Despite this, decline of demand for iron in 2014 led to decline of iron ore prices by more than 50 percent, and subsequent collapse of more than 70 mining companies in Australia (Lannin2014). China's rising demand for basic commodities from the developing nations has also led to increased prices for staple foods and industrial raw materials, including steel, aluminum, copper and rubber from Zambia’s Chambishi mines. Millions of farmers from across the globe who rely on revenue from these commodities have had to battle with the rise of global prices. The rise of prices has reversed years of slumping prices (Zweig 2008). Political impacts According to Zweig (2008), a political concern is the need for the resources to sustain its fast growth has led China to implement the “Beijing Consensus”, which has been inconsistent with the “Washington Consensus” that until China’s rise had prevailed in the global commerce since the World War I. Some critics have argued that the country’s government has showed little regard for the policies of its resource suppliers. Indeed, it has been argued that China’s economic support has enhanced the rise of dictators around the globe. Zweig (2008) believes that China has tried to influence its dictatorial allies when its policies trigger instability that threatens the economic interest of China. Indeed, some critics perceived a substantial shift in 2007-2008 when China started to pile pressure on its resource suppliers, including Iran and Sudan (Morrison 2014). Zweig (2008) however, views the rise of China as a global threat to international copyright law. Indeed, some analysts have criticized China for developing its economy for technology copied from other countries, including a negative model that can trigger more states to confront the Berne Agreement system. While this is so, the country appears determined to change the domestic environment that can encourage such tendency. Growth of foreign investment China has expanded foreign investment, particularly in developing economies. In order to assess the impact of the rise of the Chinese economy on the developing world, then its role as exporter and target for foreign investment, and as a trading partner has to be differentiated (Zweig 2008). A critical concern for the developing economy has been the country’s capacity to absorb much of the foreign investment from the developed economies. Still, a study by the International Monetary Fund (IMF) of China between 1990 and 2000 showed that capital flows to China rose independent of capital flows to Southeast Asia (Zweig 2008). Still, the post-World Trade Organisation (WTO) rush for foreign direct investment (FDI) into China has changed the state of affairs. Yet, the perspective of the terms of trade is more integrated (Chow 2001). China has become the developing nations’ best customer. For instance, imports from Latin America and Africa increased by 81 and 54 percent in 2003 and 2004 respectively. China has also become the developing world’s largest importer -- only third to the United States and European Union (Groot et al 2011). As indicate by Zweig (2008), 45 percent of China's $400 billion in imports in 2002 originated from the developing nations, which rose to $55 billion in 2003. Growth of competitive international market China's huge demand for food has increased competition in the international market. The economic rise of China has escalated scramble for trade with the emerging markets in Latin America, Northeast Asia, Southeast Asia and Africa (Lum et al 2009). For instance, Northeast Asia has benefited significantly from the economic rise of China, although efforts to escalate the product cycle in South China has put it in stiff competition with Japan, South Korea and Taiwan. China's huge demand for food has led to pour money in the agricultural industry across the globe. These competitors have also improved China' manufacturing capabilities. On the other hand, China has threatened the economy of Southeast Asia since they have similar commodities, while many of the commodities China produces are imported from Southeast Asia as part of the production network that started in the region (Lin 2010). Additionally, the rise of the Chinese economy has driven economic integration in Southeast Asia, since these nations require a larger internal market in order to keep a market for their goods. Even so, China has had some positive implication on resource exporters, including Brazil and Australia by prompting them to be more competitive, hence producing high quality products (Teunissen 2003). Collapse of production/exports from developing nations The impacts of China on global economies have depended partially on whether the Chinese goods compete directly against exports from the developing countries. Indeed, Zweig (2008) indicates that the businessmen in El Salvador become deeply concerned about the competition posed by China, particularly in the textile industry. Such poor countries that depend on commodity imports suffer economically as China pushes up or down prices (Lannin 2014). In fact, China is viewed as an efficient garment producer and has the potential to dominate the global textile market, especially after the global system of quotas vanished. Such a scenario is likely to damage garment workers in countries like Cambodia and Bangladesh, who largely depend on the industry for jobs and income and a protected market. For instance, Central America’s Maquiladora industries that depend on exports to the US under preferential agreements have significantly exited the market, as they fear the emerging competition with China. Indicated below are the countries that are the direct competitors with China, and which are likely to suffer economically due to China’s growing imports (Bensidoun et al 2009). Figure 1: Countries competing with China for exports 2000-2005 (Zweig 2008) As indicated in the figure below, Mexico is at risk since it produces close to 50 percent of Latin America's exports. As would be the case, assembly plants move to China while the Chinese products flood the Mexican market. On the other hand, China has overtaken Mexico as the leading supplier to the United States (Zweig 2008). Infrastructural development in developing economies Large positive results have been witnessed in Latin America and Africa. In many ways therefore, China has played an important role in promoting the recovery of Latin American and African countries (Flores-Macı´as & Kreps 2013). China’s voracious appetite for natural resources on developing countries, especially in Africa, has largely been positive. According to Zweig (2008), China is currently Africa’s third leading trade partner, behind the United States and France (Prasad 2009). China has been a leading purchaser of commodities from Africa in the oil sector, as well as phosphate, cocoa and cotton. China has built new roads and harbours in order to acquire these commodities while promoting significant developments in Africa, in places that need investment in infrastructure. Still, China has failed to confront the problems in Africa. A case in point is its role in mismanaging Chambishi mine in Zambia and the continual of low development standards in the areas surrounding the mine. On the other hand, China has also promoted significant economic development of several developing countries (Morrison 2014). In Sudan for instance, Chinese investments have transformed Sudan into a major oil-exporting country, hence bringing huge wealth to the country. As stated by Zweig (2008), there has been huge investment in the non-oil infrastructure by the non-energy-related firms in China in several projects, including social facilities and pipelines in regions, where oil is produced in Sudan. This has improved the quality of life in the country. Growth of cheap labour market Some negative impacts on labour have been noted in third world countries, such as Congo, Angola, Peru, and Chile. As stated by Zweig (2008), China has continually perpetuated use of cheap labour to extract the resources in return for Chinese imports. China has also created significant problems for Asian countries directly competing in the production of electronics, textiles and shoes, such as Singapore, Pakistan, Bangladesh and Vietnam. Therefore, Chinese imports to the third world markets have crowded out the world imports. These impacts have however, tended to concentrate in consumer goods markets, rather than in capital goods markets. Still, these Asian countries have also benefitted from cheap labour and increased value of RMB to the degree that their cheaper workforce has enabled them to replace China in production (Cox 2012). Conclusion China's economic rise has had more negative than positive implications on the world economy. Among the negative impacts, include the idea that China’s economic support has enhanced the rise of dictatorial regimes with the trade partners. Additionally, it has also led to pushed up world prices. China has also become a global threat to international copyright law. It has also led to collapse of exports from developing nations. Next, it had triggered the growth of cheap labour market. On the other hand, China’s positive implications include the expansion of foreign investment, particularly in developing economies. Next, China's huge demand for food has increased competition in the international market. It has also led to infrastructural development in developing economies, such as Sudan. Reference List Bensidoun, I, Lemoine, F & Unal, D 2009, "The integration of China and India into the world economy: a comparison," The European Journal of Comparative Economics Vol. 6, n.1, pp. 131-155 Chow, G 2001, "The Impact of Joining WTO on China’s Economic, Legal and Polical Institutions," Journal of Economic Literature, pp.1-14 Cox, M 2012, "Power Shifts, Economic Change and the Decline of the West?" International Relations vol 26 no 4, pp.369–388 Flores-Macı´as, G & Kreps, S 2013, "The Foreign Policy Consequences of Trade: China’s Commercial Relations with Africa and Latin America, 1992--2006," The Journal of Politics, Vol. 75, No. 2, April 2013, Pp. 357–371 Groot, S, Lejour, A, Mohlmann, J & Groot, H 2011, “The rise of the BRIC countries and its impact on the Dutch economy," CPB Background document Lannin, S 2014, "Iron ore, coal price drop bad news for Australian mining contractors," ABC.Net, viewed 19 Jan 2015, Lin, J 2010, "China and Global Economy," Asia Economic Policy Conference, pp.213-228 Lum, T, Fischer, H, Gomez-Granger, J, Leland, A 2009, "China's Foreign Aid Activities in Africa, Latin America, and Southeast Asia," Congressional Research Service 7-5700 Morrison, W 2014, "China’s Economic Rise: History, Trends, Challenges, and Implications for the United States," Congressional Research Service 7-5700 Prasad, E 2009, “Effects of the Financial Crisis on The U.S.-China Economic Relationship," Cato Journal vol. 29 no. 2 pp.223-230- Teunissen, J 2003, China’s Role in Asia and the World Economy, Forum on Debt and Development (FONDAD), The Hague Zweig, D 2008, China and the World Economy: The Rise of a New Trading Nation," Paper presented at the World International Studies Association Ljubljana, Slovenia, 24 July 2008 Read More