China and Chinese Economy - Research Paper Example

CHINA and Chinese Economy Thesis The spurt and growth of the Chinese economy in the last decade is ambitious albeit controversial. Introduction China is a socialist economy. Although growth in China’s economy is spurred by globalization, this country has not experienced its full potential due to its unwillingness to completely or even in good measure open up its economy to imports, especially import of Hollywood movies. As a result, there are numerous complaints in the World Trade Organization (WTO) that invariably rules against China’s policy that proves costly and counterproductive to its handsome gains resulting from its WTO membership. In June 1980, the Ministry of Foreign Trade and Economic Relations enacted the "Interim Rules on the Export License System." The document stipulated that firms that engage in export business must file in advance applications to the Ministry of Foreign Trade and Economic Relations or the foreign trade administrative departments under in the various provinces, autonomous regions and municipalities directly under the central government that have been authorized by Ministry of Foreign Trade and Economic Relations (Import/Export License System, 2008). International Organizations International organizations have displayed keen interest in investing in China, notwithstanding its restrictive policies. China has displayed good business sense in spite of its negative political rhetoric. 400 of the top fortune 500 companies have invested in China. Cheap labor and improved working conditions appear to spur economic radiance. However, it is good to keep fingers crossed. Economic gains have yielded little political reforms. In case flight of foreign capital starts taking place there will be problems of unemployment and uncertainties in finance (Overall Evaluation of WTO Entry's Influence on China). While on the subject, it is also pertinent to remember China’s growth is spurred by exports. Its domestic market may find it very difficult to survive should exports come down significantly or vanish altogether. For the moment, China faces little competition in the manufacturing sector, thanks to its political ideologies. China’s imports and exports “China’s major exports consist of machinery and transport equipments constituting to nearly half of the total exports. Another major portion of the exports comprise of textile, rubber and metallurgical products constituting to 18%. Chemical products, food, mineral and fuel materials made of up 10% of the total exports. There is an exponential increase in the machinery and transport equipments segment of the exports from a mere 5% to 47% in 2007” (China exports by category of commodities, 2010). “For year 2007, machinery and transport equipments made up the majority of the imports, accounted for USD 412 billion or 43% of total import volume. Next major imported products were chemical products which took 11.3%; mineral and raw material accounted for 11.0%; and textile, rubber and metallurgical products were 10.8%” (China imports by category of commodities, 2010). China’s reputation as the number one manufacturer of world products today has enabled it capture myriad markets from all over the world, notably the United States (US) and the European Union (EU). Corporations in the US and the EU who found their fortunes dwindling in their own countries rose like the proverbial phoenix by establishing their enterprises in China. China’s Economic System China’s new-found euphoria as a major contributor may also prove to be a setback in certain quarters. As socialist economy, China observes the “rule-of-the-thumb” and cannot digest the principles of free market. This has brought it into conflicts time and again with free economies such as the US and the EU. This is proving costly and may result in undoing its major gains (China’s plea dismissed by WTO, 2009). The Chinese economy has grown very fast during the last decade. There has been double-digits growth in almost every sphere of the economy. “Due to the incessant implementation of the policies of expanding domestic demands, the national economy has kept a robust momentum” (Overall Evaluation of WTO Entry's Influence on China). As of now, people have better purchasing power due to increased salaries and economy boom. However, the Chinese government will have to use all the ingenuity at its command to experience lasting Utopia unless they carry out policy changes. The Chinese are capable of limiting damages if they continue formulating economy-boosting policies such as establishing free economy zones such as Shanghai. Exports/Imports Restrictions However, China’s imports have not been as forthcoming. China’s restrictive policies in information technology (IT) and the media have kept it at loggerheads with IT corporations including Hollywood. China allows only 20 Hollywood movies to be released on its soil each year against its vast potential (China’s plea dismissed by WTO, 2009). Other than IT, other markets in imports have been stable. “In 2002, China's imports hit US$29.52, up 21.2%. The imports kept stable. Growth rate of import was below 1.1%. Main force of import growth came from processing trade, which increased by 30.1%. Other trade imports only grew 13.8%” (Overall Evaluation of WTO). China and the WTO “In 2001 the global trade volume decreased 4.5%; in the first half of 2002 it decreased 4%. Against such a macro background, in 2002, China's export was surprisingly better than expected as a result of its involvement with the WTO in December 2001. Exports totaled US$325.6 billion, up 22.3% than the previous year”. This attributes to the series of changes in domestic and international situations. Meanwhile this is indispensable from WTO entry. China's entry into the WTO not only increases foreign countries' confidence in its economy and greatly uplifts its attraction to foreign investment, but also highlights its advantages as the safest investment place, a vast market full of potentials, and a low-cost manufacturing base. Meanwhile it triggers off the global industrial transfer and strongly stimulates export expansion (Overall Evaluation of WTO). China and the IMF China has begun to be expressive and dominant in international forum in the economic scenario. Its contribution to the International Monetary Fund (IMF) has been remarkable enough to press for greater say in international affairs. The recent global meltdown, seen as a setback to the dominant western powers, is being surreptitiously used by China to usurp more powers in view of its greater contributions. China has demanding more voting rights in exchange for new funding the IMF is seeking from China. China’s contribution to the IMF as on 2007 is around 3% of the total 250 billion dollars. The IMF has sought more funds from China on its quest to increase its funding to 500 billion dollars (Batson, Andrew; 2009). China’s Exim Bank “The Export-Import Bank of China (China Eximbank) was established in 1994. This bank is fully owned by the Chinese government and is under the direct leadership of the State Council. Headquartered in Beijing, the Bank now has over ten domestic business branches and representative offices as well as three overseas representative offices in South Africa, Paris and St. Petersburg. It has set up correspondent banking relations with more than 300 banks overseas. The China Exim Bank is a major on-lending bank of foreign government loans and the only operating bank for Chinese Government concession loan. By doing so, the Bank is playing a bigger role in promoting the development of China's open and export-oriented economy” (The Export-Import Bank of China). Conclusion China’s policy of pursuing its goals by selectively choosing good business opportunities and adroitly following up with pragmatic follow through is helping it overcome its shortcomings as a socialist economy. The Chinese have evolved over the years and sharpened their economic skills to appreciable levels. It is difficult to understand how long they will be able to continue with this approach. Good economy can only thrive in free economy. Other alternatives are not long lasting. China has vast population reserves. It has done commendably well to restrict population growth. However, its restrictions on political and the fourth estate legacy continue to threaten its good show in the economic front. From its tract records, China does not appear to make any shift from its political leanings in the days ahead. Its human rights record also does not inspire confidence. Foreign enterprises in China have the option of continuing to do business in China as long as they do not come in conflict with political and free speech issues. The Chinese are loyal friends so long as these two issues do not find mention in the scheme of things. The problem is that these are major issues. They cannot be kept under wraps indefinitely. Sources: Batson, Andrew; 31 March 2009, China Seeks More Involvement – and More Clout, http://online.wsj.com/article/SB123837953546968375.html China exports by category of commodities, 2010, http://www.starmass.com/china_review/imports_exports/exports_by_commodities.htm China’s Import and Export, 2008, http://www.china-window.com/china_market/china_business_alerts/import-export-license-sys.shtml China imports by category of commodities, 2010, http://www.starmass.com/china_review/imports_exports/imports_by_commodities.htm China’s plea dismissed by WTO, 22 December 2009, DECEMBER 22, 2009, http://online.wsj.com/article/SB10001424052748703344704574610082582870944.html Import/Export License System, 2008, http://www.china-window.com/china_market/china_business_alerts/import-export-license-sys.shtml Miller, John W; 13 January 2010, WTO to Probe U.S.-China Tire Rift, http://online.wsj.com/article/SB126323846798625041.html Overall Evaluation of WTO, Entry's Influence on China, http://english.peopledaily.com.cn/200306/06/print20030606_117786.html Suzuki, Eisuke; 2007, Bilateral Policy Orientation in the Multilateral Development Policy: A Challenge for the China Exim Bank and its Accountability, http://academia-research.com/files/message/2130764_China%27s%20Exim%20Bank.pdf The Export-Import Bank of China, http://english.eximbank.gov.cn/profile/intro.shtml Read More