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Successful transition - Essay Example

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Over the last ten years, China has acquired foreign exchange reserves amounting to 3.2 Trillion US dollars and economic statistics show that it currently holds the biggest current account balance. In the year 2011, it operated under 265 billion US dollars in excess alongside the…
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Introduction Over the last ten years, China has acquired foreign exchange reserves amounting to 3.2 Trillion US dollars and economic statistics show that it currently holds the biggest current account balance. In the year 2011, it operated under 265 billion US dollars in excess alongside the United States of America. This achievement is ascribed to mercantilism in the modus operandi of the Chinese economy (Davis 2011, pg. 1).
Discussion
The mercantilist dimension in operating the Chinese economy has presented various advantages to the contemporary Chinese society. However, other countries as well as a portion of the Chinese populace have suffered from the disadvantages that have emerged over time.
Mercantilism in this aspect involves a system of economic operation which focuses on unification and improving the levels of power of a certain state majorly monitory wealth through restricted governmental monitoring of an entire economic dimension by use of regulations, policies in order to: Ensure a balance of trade, promote agricultural and technological advancement through the creation of international market monopolies (Atkinson 2012 pg. 4).
To begin with, the mercantilism nature of Chinese economy has led to the attraction of a large number of foreign investors especially from the United States. This condition has been related to the intended undervalued currency and the cheap labor available within the Chinese populace; this has created job opportunities to majority of the population as well as to the foreign investors who are presented with a platform to operate their businesses.
Additionally, the deliberate undervaluing of the Chinese Currency presents an advantage to both the foreign investors in China and the Local Chinese producers. It enables them to successfully export their goods hence having the access to a large market.
In relation to the Chinese Government, the mercantilism has created various advantages for instance: It has enabled the Chinese government to be in possession of an extensive foreign exchange reserve specifically the dollar dominated property which currently stands at 265 billion US dollars.
Consequently, there is also the aspect of a higher rate of an increasing Foreign Direct Investments (FDI); this has also been attributed to the intended undervaluing currency of China, availability of cheap labor as well as an influx of foreign business investors major from the United States of America and other major economies such as the Great Britain, Japan, Singapore and the Korea (Davis 2011, pg. 1).
Despite the fact that China has been making tremendous economic gains from its mercantilism modus operandi, other foreign countries especially the dominant market economies have been facing several economic deteriorations. The first global economic deterioration occurs from the large production subsidies that have resulted in tremendous reduction in the cost of production hence cheap labor; this has forced other countries to shift from capital oriented production to labor production hence low productivity (Atkinson 2012, pg. 6)
There have also been issues concerning the theft of intellectual property of other innovator by the Chinese Technological development firms; this has resulted to a scenario of reduced amount of revenues acquired by the innovators whose capacity to reinvest in technology development may is reduced. Moreover, concerns over Chinese manipulation of international business benchmarks have been identified as disastrous to other international businesses as it reduces their international market share size hence increasing the costs of production.
Work Cited
Atkinson, Robert. Confronting Chinese Innovation Mercantilism. Washington, D.C.: ITIF, 2012. Print.
Davis, Mathews. Is China Mercantilist? Massachusetts: National Bureau of Economic Research, 2011. Print. Read More
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