Globalisation Friendly Policies of China - Essay Example

Globalisation Friendly Policies of China Our world since its origination has been a ‘hotbed’ of activity. That is, the mental and physical activities of humans have transformed our globe from a primitive one to an advanced one. As time flowed, new movements or changes started to have effect on the lives of people and international relations, aiding as well as affecting it. Among the many movements, globalisation had a major impact on the people worldwide. The term Globalisation is normally used to refer to the increasing phenomenon of global interconnectivity in all the aspects including the social angle, cultural, political and importantly economic angle. Economic part of globalisation is the key because with the whole world becoming a kind of global village, barriers between the countries are broken with integration happening mainly in the economic aspects. So, Globalisation has made an impact and developing majority of the countries all over the world including China. That is, countries like China are following many ‘globalisation friendly’ policies, thereby developing themselves, and to show they are developing, they in turn are impacting other countries through that development. When one closely looks at the annals of many countries, it will be clear that for a nation to develop and reach the top echelons, particularly in the aspect of giving its people the needed facilities and also to achieve superiority over other nations, its economy should be very strong and still growing. This economic strength will elevate the country in other aspects like military strength, space power, sports, etc, etc, thereby impacting other countries. As any country’s economy cannot exist like an island insulated from any impacts, its growth or lack of growth will surely have an impact on many countries both in the positive as well as in the negative direction. So, this paper will examine how China has developed optimally through ‘globalisation friendly’ policies, and how that development is visible in the way the Chinese economy and its people have developed, and also how this development of China is turning out to be an economic challenge to United States and Europe. China’s ‘globalisation friendly’ policies For a long time, China mainly depended on agriculture for its economic generation as well as for the livelihood of its people. However, after the onset of globalisation, China started to focus on industrial growth. The term Globalisation refers to the growing phenomenon of global interconnectivity in various aspects including the social aspects, cultural, political and importantly the economic aspects. “Globalisation is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment …. This process has effects on the environment, on culture, on political systems...” (Rothenberg 2002). The industrial development associated with globalisation has helped China to develop many industry sectors and thereby putting the ‘seeds’ for it becoming an economic superpower. However, it did not happen immediately, as various obstacles particularly political obstacles prevented globalisation from having deeper impact. China because of Communism based government, functioned behind an “Iron Curtain”, restricting the entry of foreign and multinational firms. However, when globalisation took off in early 1990’s, series of positive changes happened throughout the world and China not wanting to miss this great opportunity opened up its “Iron Curtain”. “For mainland China, globalisation process has been made possible by the open door policy and the subsequent adoption of an export-oriented growth approach, following the economic growth model in the greater China region and East Asia.”(Wu 2006, p.2). With these minimal relaxations, Chinese government allowed the entry of Multinational firms. In the earlier decades, the cheap Chinese products only entered various countries’ markets. But, seeing the potential of the Chinese economy and the market, the Chinese government as part of ‘globalisation friendly’ policies facilitated the entry of many foreign firms or foreign invested firms into the Chinese markets. With other countries of the world including its neighbours and potential competitors like India becoming part of globalisation and allowing MNCs into their market, China also joined the bandwagon. As mentioned above, the main issue that prevented China from becoming part of globalisation is its Communist form of government, but the economic benefits of globalisation made China understand that they cannot miss becoming part of globalisation. So, they opened up their market to foreign firms and even gave them many tax benefits. It all started in early 1990s with many American as well as European firms making entry as part of the wave of globalisation. Although there were certain restrictions in China when compared to other countries, foreign firms were given full access with some sops and tax cuts working as a added incentives. As there was visible economic growth immediately after adopting globalisation, the government saw the full potential of the Chinese market and facilitated more entry. Thus, China’s rise can be regarded as proof of the opportunities presented by globalisation. (Kiely 2008, p. 356) Apart from these measures, the key ‘globalisation friendly’ policy of the Chinese government which allowed more foreign entry and importantly developed it is the relaxation of the trade restrictions brought about by China’s entry into World Trade Organization. “After China joined WTO in 2002, the pace of opening-up has quickened. (Wu 2006, p.2). As China became a WTO member, it was duty-bound to open up its market, and the Chinese Government for its part removed many laws, which impeded foreign entry, as part of the WTO regulations and importantly to facilitate globalisation. “China reviewed more than 2500 trade-related laws and regulations for WTO consistency, repealed or amended nearly half of these, and issued many new laws and regulations.” (Yagar 2004, p.7). China was obliged to open its market to foreign investment and ownership, enabling foreign firms to invest and function. But, even with all these favourable situations for globalisation, the foreign firms entering China were challenged by the Chinese government and also by certain other existing local conditions. Even though China is accelerating at a fast rate because of ‘globalisation friendly’ policies there were certain negative effects to these policies. That is, even while following friendly practices, certain segments of the Chinese machineries negatively impacted these friendly policies. However, these negative impacts are minimal and caused minor irritants. Among these, the internal factor of corruption turned out to be a major challenge for globalisation. Many Chinese departments particularly ones dealing with the foreign investment have become corrupted, with the government officials manning these departments openly demanding bribes. So, with corruption expanding its tentacles throughout China, the foreign firms think twice about entering the market, impeding globalisation. The existing companies also find the ritual of bribing the government officials an irritating at the same time costly exercise. If the firms refuse to give bribes to the government officials, the officials will place continuous and difficult obstructions. Also, if the firms commit any mistakes or environmental violations then also corruption comes to their aid, giving a bad image to the globalisation. Leslie (2007) discusses this aspect by pointing out that China's central government has issued some fairly strict regulations to limit plant emissions, but they are rarely enforced because of corruption and the reluctance of local officials. Also, the local Chinese officials who are not given bribes could expose western firms to potentially vast environmental, human rights, and financial liabilities. So, these corrupt practices raise doubts among the foreign firms to China, thereby impeding globalisation. However, this is not the case all the time because only minimal sections indulge in corruption and other restriction. This is because, Chinese government have strict anti-corruption laws, with extreme cases of corruption even given death sentences, and that is aiding globalisation. Walker (2007) focuses on this issue by pointing out the ironic fact that China was able to prosper and grow without following democracy and in spite of breathtaking levels of corruption. Thus, it is clear that China is able to develop by maximally following ‘globalisation friendly’ policies. China’s Development through ‘globalisation friendly’ policies With these ‘globalisation friendly’ policies and favourable situations happening quite quickly, China’s foreign trade optimized maximally, mainly in its favour. That is, many companies from all over the started investing in China, with the establishment of many factories. “It began by attracting significant amounts of inward foreign direct investments from firms from the United States, from Asia and elsewhere, that build factories in China to produce either for the global market or for the domestic Chinese market.” (Lardy 2009). These factories, with high productivity exhibited by the Chinese people for low wages, generated good profits positively impacting the company, the government as well as the people, which indirectly strengthened the economy. Even while allowing foreign investments and developing its economy, as part of globalisation (or ‘reverse’ globalisation), Chinese companies and its products optimally entered many countries’ market, striking rich benefits. As China opened up due to globalisation, it was also given good opportunities to enter other countries because of globalisation. Its cheap as well as quality products received good response from many countries and its people, thereby generating a lot of revenue for the Chinese companies as well as foreign exchange for the government, thus strengthening the economy even more. Apart from these initiatives, Chinese companies with a global and superpower perspective took over few iconic foreign brands such as the IBM think pad brand. Also, indigenous Chinese companies are also making a good impression in the global stage. With the advent of globalisation, China has implementing policies which intends to nurture indigenous companies with global reach and appeal. Within the high value-added, high technology, strongly branded market, a sizeable number of giant firms are created as a form of 'system integrators' (Nolan 2002). So, because of ‘globalisation friendly’ policies, it has become a two-way street for China, with good finances entering the Chinese market and at the same even more good finances are being garnered by the Chinese companies from outside China. China is witnessing a fast economic growth with every sector of its economy showing optimum progress. The economic potential and thereby the purchasing power of every Chinese is increasing. This scenario will also continue in the future, with every Chinese household’s purchasing power increasing and that will give opportunities to all the businesses. In the year 2010, 40 million households will take home more than 48,000 renminbi ($6,000) per year, which is equivalent to $24,000 in terms of purchasing-power parity and good enough to make the grade of a middle class by U.S. standards (forbes.com, 2004). So, prosperity is a positive factor in China and it will be apt for the foreign firms. There is also a huge potential in the middle and low income groups. These groups provide volumes and hence foreign companies can’t ignore this group as it would help them to achieve economies of scale. With optimum inbound and outbound trade in the range of 2.6 trillion U.S. dollars last year, which is 120 times more than it was in 1978 when China started its basic economic reform, China has been elevating its economic position. This strengthening of the economy, optimization of both inbound and outbound trade and improvement in the standard of living is helping China to attain the status of Economic Superpower. So, because of globalisation China has developed optimally and has become a superpower by the kinds of standard metrics we use in economics. That is, China fulfils the metrics of a very large trade; very large economy; very large participation in the global financial market that’s big enough and integrated enough into the global economy that it has a significant impact on the rest of the global economy as its domestic situation changes. (Lardy 2009). China’s development through ‘globalisation friendly’ policies challenges United States and Europe This tremendous improvement of China in the economic sphere is having both major and minimal impact on many countries of the world, and United States as well as European countries are no exception to it. That is, as both USA and European countries have a strong economy, which have global perspective, China’s development as a global economic superpower throws up many areas where these entities collide as well as complement. More than complementing, all these entities collide, with China’s development because of ‘globalisation friendly’ policies giving it some advantages, while USA and Europe face many challenges. With China’s optimum trade, the trade balance between China and USA, appears to be negative for USA. That is, with Chinese exports to USA dominating the trade between the two countries, USA faces a trade deficit of more than 200 billion dollars according to last years’ (2008) estimates, which is a rise from the previous year. “The U.S. goods trade deficit with China was $268.0 billion in 2008, a 4.6% increase ($11.8 billion) over 2007. The U.S. goods trade deficit with China accounted for 32.8% of the overall U.S. goods trade deficit in 2008.” (Office of the United States Representative). This negative trade deficit for USA clearly shows that its businesses are not able to match the successes of their Chinese counterparts. Thus, the main challenge of USA is to reduce this trade deficit gradually and attain positive trade equation. Only in this decade, USA started having a negative deficit and this clearly shows how China has developed because of ‘globalisation friendly’ policies. Another challenge USA faces because of the development of China through ‘globalisation friendly’ policies is the possibility of crashing of the US government’s bond market by China. China has the biggest foreign exchange reserves than any country in the world and they could use that to leverage other countries, particularly USA. “China became the world's only country with foreign exchange reserves surpassing US$2 trillion in June, the central bank said yesterday. China's forex reserves grew by 18 percent year on year to US$2.13 trillion at the end of June, the central bank said.” (Yanlin and Fengming 2009). With these optimum foreign reserves, China is buying US treasury bonds in a heightened manner. By buying these bonds, China is actually ‘helping’ fund the US debt. With this increasing debt, USA could face major troubles if China sells these bonds. “Should they suddenly sell all of these bonds, then economic logic suggests that this would lead to a rise in US interest rates, throwing US economic planning into turmoil. As Philip Segal argues, China has the power to 'crash the US government bond market'.” (Breslin 2005). All these worst case scenarios and threats are mainly because of the development of China through ‘globalisation friendly’ policies. With that status and rich FOREX reserves, it is and could also negatively influence USA, thus putting in a major challenge. In so doing, China emerged in recent years as the principal upholder or destroyer of US economic vitality (Ho-Fung 2009). Apart from these economic based challenges, USA could face political or military challenge because of the development of China through ‘globalisation friendly’ policies because of the development of China through ‘globalisation friendly’ policies. “We can see that China's impact on the United States in the economic sphere has been real and marked, with the likelihood of becoming more so in the years to come. Its impact on American security in the last few years has gained the attention of security specialists.” (Bader 2006). That is, with its economy booming, Chinese government was able to allocate a major portion of its finances for defence spending or military use. China's military expenditures have been expanding at about 12% every year for the last eight years. With heavy allocation in the development of many disruptive technologies like cruise missiles, advanced submarines, strategic nuclear strike capabilities, etc, etc, it challenges the military strengths or domination of USA. Although, USA has a strong arsenal, China’s economic strength is working as a catalyst for developing its military capabilities, thereby imbuing it with strength to challenge USA in times of conflict or confrontation. “Defense Department's Quadrennial Defense Review released 10 days ago, which sees China as "having the greatest potential to compete with the U.S. and to field disruptive technologies that could over time offset traditional U.S. military advantages.” (Bader 2006). Because of the development of China through ‘globalisation friendly’ policies, it is impacting the European countries in certain ways, thereby acting as a challenge. The main challenge for Europe like USA because of China’s rise has been negative trade deficits in favour of China. That is, European countries on the whole were not able to match China in their exports, with Chinese exports easily overtaking it, mainly through their edge in the textile and the IT sector. “EU’s trade deficit with China was 160 billion euro in 2007, accounting for 86% of the EU total trade deficit. To put it differently, the total trade deficit of the EU of 186 billion euro very much reflects the sizeable imbalance in the European-Chinese trade.” (Papademos 2008). So, like in the case of USA, China’s development through ‘globalisation friendly’ policies is indeed making an impact on other countries. Conclusion Financial or economic power ‘runs’ and impacts the world in many ways. From giving all the needed comforts to the people, to being crux of many problems, it is having both a positive as well as negative impact on many countries. That is, economy of a country plays an important role in elevating the lives of people, optimizing country’s image in the world stage and importantly impacting other countries’ economic policies and other policies. This happened with China as it attained or attaining development through ‘globalisation friendly’ policies. From the above analysis, it is clear that globalisation has placed its major footprint in China with factors like China’s entry into the WTO, optimally growing and booming economy and huge market, aiding the process. Globalisation is a challenge not only for the economic, social and political forces of society and the world, it is also a challenge for financial markets, intergenerational solidarity, the protection of nature and the environment and is responsible for the growing gap between the rich and the poor. Thus, ‘globalisation friendly’ policies of China, apart from improving its citizens’ standard of living and gaining positive image throughout the world, is acting as a challenge to for other countries. Bibliography Rothenberg, L E 2002, Globalisation 101: The Three Tensions of Globalisation, American Forum for Global Education. [Online] (accessed 28 March 2010); available from http://www.globaled.org/issues/176.pdf. Breslin, S 2005, "Power and production: rethinking China’s global economic role," Review of International Studies, Vol. 31, No.4: 735-753 Bader, JA 2006, China's Emergence and its Implications for the United States [Online] (accessed 28 March 2010); available from Fengming, W Y and Zhang 2009, China's forex reserves surpass US$2 trillion [Online] (accessed 30 March 2010); available from http://www.shanghaidaily.com/sp/article/2009/200907/20090716/article_407626.htm Ho-Fung, H 2009, ‘America’s Head Servant? New Left Review, no.60, pp.5-25. 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