Is China Rise an Opportunity or a Threat to World - Essay Example

Executive Summary China is the longest standing civilization whose history s back over four thousand years. The socialism communist has always existed in China and its part of its tradition. The objective of the nation is to serve the common good of its residents. The population growth in China as well as other market factors induced change in China. The country started a process of organic economic growth in the 1960’s which manifested itself with three decades of double digits economic growth in this nation. In the 21st century China is an economic power that is changing the business environment globally. The country created an atypical economic growth model for a socialist nation which utilized market forces and strategies somewhat similar to an open democratic capitalistic market. The transformation of the nation was a slow process that culminated in a virtually open market in the 21st century. Light manufacturing is the nations strength since these operations are heavy on labor and China has the lowest prices of trained labor worldwide. There are plans for this economy to enter into other sectors. Among the topics discussed in this report are economic development in China, the US-China relationship and its global implications and China’s path towards change. Economic Development in China China changed into semi-open economy forgetting about the previous close economy characteristic of a communist regime to obtain economic growth. China started to invest in infrastructure, water and energy supply increased capacity, and its transportation system to create a more attractive investment location for foreign capital. The transformation started in the 1960’s and the country created an effective environment for manufacturing operations. Communist philosophy did not interfere with the market forces opening. An economy committed to change that is willing to accept the best paths irrelevant of its political structure can achieve financial and economic growth. Economic development is the objective and key missions of all countries in order to achieve a better standard of living of the population of the world which has risen to 6.7 billion as of the fourth quarter of 2007 (CountryWatch). The country took off and gained political, military, and economic power in the 20th century to become the most powerful and influential nation in the world was the United States. In a latter stage of the century starting in the early 1970 a nation that exploded into the global game and displayed decades of outstanding economic growth of an above 10% yearly rate was the People’s Republic of China. China was viewed as a Third World Nation despite having the largest human capital head count in the world a factor that forced the nation to create a law to control its population growth by implementing a law that limits the child born to one per matrimony (Srinivasan). The key governmental policies, international relations positions, monetary policy, fiscal policy, cultural changes, political changes among other factors will be discussed in this report. China realized in the 1960’s that due to the astonishing population growth in the region the government needed to increase its production rate in order to increase the living standards of its residents. The strategic business model that reaped lots of success for this nation was a corporate structure based in the formation of joint ventures among investors in which the Chinese company held more than 51 percent of the newly formed enterprises, thus control the firms would always be under Chinese ownership control. In small sequential steps the Chinese government changed its policies and allowed greater access to foreign investors. The Chinese economy excels due to two tremendous characteristics: cheap labor and excessive abundance of human capital. The Chinese nation is the most populated country in the world with a total of 1.3 billion Chinese people (CountryGrams).The rise of China is both a long term economic threat while a the same time a short and medium term business opportunity for nations around the world. The threat of China is based on the immense labor savings the economy can offer to firms which represents a saving worth nearly 95 percent in comparison with its American and European counterparts. The supply of raw materials is readily available and much lower in price than in other locations. China can deviate and foreign funds from entering into other markets since investors, especially in industries which are labor incentive will move to this location is to achieve lower operating costs. The region also represents an opportunity for economies and business worldwide. To take advantage of the Chinese market an entity does not have to physically enter the land to reap the fruits of the market. Many companies are enjoying the benefits of the China market by importing supplies from China which are priced lower than in other market, thus obtaining saving in its purchasing cycle. Companies may allow outsource the manufacturing of manufacturing process to China to obtain much lower production costs. Even though the Chinese economy does pose a threat to other nations worldwide it has not developed enough to directly compete with developed nations in terms of business volume related to the new knowledge economy. The Chinese conversion into an economic power has the effect of a nation such as the US using a time machine to turn back the clock 50-100 years ago when the prices of goods at level similar to the cost structure China enjoys. Zhao, Xiaodi, wrote that the introductions of foreign investment for the past over 20 years could be divided into four stages in general (Country Insight). In the first stage (1979- 1983) the overall foreign investments into China were scarce and limited. The state approved nearly 1,400 projects worth over seven billion dollars. .In the second stage (1983-986) new laws were created to provide greater incentives for capital to enter the Chinese In the third stage (1987-199I) the policies, international relations, attitudes and willingness to appreciate foreign capital into China increased. The amounts of FDI that entered China during this time period more than doubled during this stage in comparison with the previous stage. The period following the start of the Internet Age which occurring early in the 1990’s is referred to as the period of fast & high speed growth for the Chinese. The fourth stage was the period with the highest amount of foreign investment income. The deal that China made with the World Trade Association in 2001 to gain entrance into the powerful organization had a clause which obligated the country after 2004 to allow foreign firms to distribute their goods without the need to enter into alliances and joint ventures with state-owned Chinese partners (Wiseman). The 2004 WTO clause open the gateways for fully owned subsidiaries of foreign firms in China. It is a very significant piece of de-regulation which makes the Chinese market in practical terms a truly open market. US-China relationships and its global implications The United States is the worlds leading nation in the 21st century still due to its aggressive international relations, its experience and expertise in foreign markets and its predominant military capabilities. The US is keeping a close eye on China and its politics are to keep China as an allied despite the economic threat it represents. China is still underdeveloped in many ways and it can not compete with sophisticated product and service offering available in knowledge economies. The United wanted greater access to the country and it hopeful that China will switch its political structure into a full democratic regime. Socialism has worked for the Chinese regime, but there have been changes into lifestyle of the Chinese such as greater levels of consumerism in affluent cities which is a trademark characteristic capitalistic market structure. Historically access into many Chinese markets was denied by the government to the US and other western countries, but things are changing and US has gained a lot of ground in market entrance opportunities. The Chinese military is still sub par and US assistance for upgrading the infantry of the Chinese are on the table. The US has a clear objective in the Middle East and is willing to exchange knowledge with nations in exchange for assistance in the region. People belonging to the Chinese ethnic group are a large minority in the US mainland. The US has received tremendous social, economic and educational contributions into its system from American-Chinese citizens. The existence of the new China forced the foreign policy of the US to create a close bond with another Asian player, Japan. President Bush who is the head of state and most influential figure in foreign policy setting have concentrated in strengthening the alliance to battle China economic power. China is an economic threat to both the US and Japan. The US needs deeper penetration and market share of the economic activity in the Asian continent and Japan is the key allied to gain further access and achieve market growth (Cha, 2007). Because of China long term evolution the US is already formulating a long-term strategy to ensure China does not achieve absolute dominance of the Asian market. China is affecting the world tide and it is starting steal trade partner activity away from the United States. China represents a big brother for developed nations that used to rely only on the United States as the only alternative for strategic cooperation, positioning and alliances among nations. The US is the successful democratic economic growth model, while China has become a socialism economic growth business model. China reached penetration to markets which were dominated by the United States such as the South American market, a region of immense natural resources abundance. China’s unique path towards change China’s route towards success followed a strange path in since the country is a socialism nation which is associated with conservatism and non aggressive market moves since these economies are usually much closed. In the middle of the 20th century China had close stays with a limited amount of international entities and one of closest trading allies was the small island of Cuba, currently still under communist regime led by Fidel Castro and his family. China started to open up its market in strides moving from a closed to a semi-open economy into the open economy it is in the 21st. China’s open economy is heavily influenced by the government, but the current system is the closest the country has ever been to assimilating capitalistic styles of completely open markets which are self regulated. In 2001 China accomplished entrance in the World Trade Association (WTO). The World Trade Organization is one of the most powerful global organizations worldwide composed of 151 nations including the entire membership of G8 among other developed and developing nations globally. The importance of becoming a member of the WTO was that prior to being accepted the negotiating power and its acceptability in other markets around the globe was limited due to its exclusion to the organization. The WTO provides lots of protection to foreign investors since it regulates areas such as trade and imposition of tariffs. The global political achievement came at a cost for the internal politics of China. In order to be accepted the country had sign a deal with the WTO stipulated changes that were mandatory including the elimination of obligating foreign investors to form joint alliances with Chinese corporation, now wholly owned subsidiaries were permitted. (Wiseman). The state owned industries no longer had the competitive advantage of having a foreign partner which to rely on to gain access to additional resources and to administer their operations. In the mid 1990’s the state owned enterprises (SOE) become lackluster units whose productivity was very low which led to large losses for the state. In the year 1996 the reported losses of the state owned Chinese firms was one percent of the overall gross domestic product (Zichterman). The country could not afford to have these units operating under their current structure. In order to change the path the country had to implement major philosophical and political changes in the way the government administer its resources. One solution which implied a policy change that was unheard in a socialist nation is a privatization movement. “Privatization is interpreted in China as having a very narrow meaning with severe political implications such as the selling off of all SOE” (Zichterman). The strategy further disallowed the country to be able to meet the communist social agenda of creating employment with social (Economist Intelligence Unit). Chinas tendencies into the future China has a bright future in terms potential continues economic growth and further position as a world leader. There will be more changes to come and resistance to change can not intervene in the process in order for the country to continue in its current path. China will see larger investments in infrastructure of power and transportation into the 21st century. A stat that illustrates the necessity for further creation of the need for creation of greater quantity of transportation is China’s the 2.75 billion forested passengers for the year 2011 (World News Connection). The consumption of energy is going up a lot in China and it is expected to rise and even surpass the United States consumption in the near future due to infrastructure developments in this sector and rising industrial usage. China also is planning to increase its competitive edge in the knowledge economy and investments in innovation such as scientific development are underway. China predicts that by the year 2020 the portion of economic growth related to science and technology in the country will increase from its current 39% contribution rate to 60% allocation in growth due to this sector (World News Connection). A weakness of China is its current trade imbalance with the European nation. China is accumulating a trade imbalance of nearly 170 billion euros in Europe on a yearly basis (World News Connection). Another tendency is China penetrating the Latin American and Caribbean market even further. The import and exports of China with Latin America from 2000 to 2006 if mapped in a graph would illustrate exponential growth. The import and exports were at a level of approximately $12.6 billion combined in 2000, as of 2006 the total exports and imports between China and Latin America have reach a combined total surpassing $70 billion (Li 24). China’s impact in China is significant and further FDI from China into the South American region is expected. China plans to invest $100 billion in South American in the next ten years (Li 24). Conclusion China is a model of economic success that demonstrated to the world the value of hard work, endurance and collective commitment to achieve a nation’s goal. Change came in China because the government open itself to new possibilities and radically change its strategic focus. The Chinese regime utilized the best attributes of other economic structures such as capitalism in order to attract foreign investment and expand its international relations worldwide. China has a bright future in the 21st century and other nation such as the United States must recognize its presence and make adjustment to cooperate with this nation in order to achieve mutually beneficial economic transactions that will benefit these two parties and all nations worldwide. Works Cited Cha, V. “Winning Asia.” Foreign Affairs 86.6 (2007). CultureGrams. 2007. Country Profile: China. 10 November 2007.CultureGrams database. Culture Insight. 2007. Country Profile: China. 9 November 2007. Country Insight database. CountryWatch (2007). Country Review: China. 11 November 2007. CountryWatch database. Economic Intelligence Unit (2006). China. 8 November 2007. EBSCOhost database. Li, H. “Red Star Over Latin America.” NACLA Report on the Americas 40.5 (2007). Srinivasan, T.N. “China and India: Economic Performance, Competition and Cooperation; An Update.” Wiseman, P. “U.S. Companies Profits Take Off in China”. USA Today (2006). World News Connection. 24 October 2007. “Xinhua: Global Air Passenger number to reach 2.75 billion.” 13 November 2007. EBSCOhost database. World News Connection. 17 October 2007. “Xinhau China’s Focus: Brisk Consumption to Facilitate China’s Import Expansion”. 12 November 2007. EBSCOhost database. World News Connection. 18 September 2007. “AFP: EU Official Urges China to Address Trade Imbalance.” 13 November 2007. EBSCOhost database. Zichterman, A.J. “China State Owned Enterprises: Reforming the Corporate Governance Structure.” George Washington University. 10 November 2007 Read More