THE GLOBAL ECONOMY: CHINA
Introduction
With a population of 1.4 billion as of late 2018, China is the largest country in the world in regards to inhabitants, making up 18.54% of the world’s total population. It is located on the east side of the Asian continent with the Pacific Ocean to its right, and has a total land area of 9.57 million square kilometres.
As of 2018, China has a total life expectancy of 76 years, a density of 145 people per square kilometre and, according to The World Bank, a Gross National Income (GNI) of $16,760 PPP in 2017. For every 1000 women, there are 1063 men, and 23.1% of the population are below the age of 20, 65.7% being between 20 and 64 and 11.2% of the population over 65.
China is communist country with a socialist economy; meaning that everything is owned and distributed by the government and the factors of production belong to all of society. In 2014, it became the world’s largest economy in terms of GDP in PPP, and contributed 18.2% towards global GDP in PPP in 2017, overtaking the USA by 2.9%, according to the International Monetary Fund (IMF). Coming in third was India, with a GDP in PPP of 7.5%, followed by Japan with 4.9%.
Overtime, China has been able to quickly reform its economy to become “market driven”, enabling them to effectively integrate with the global economy. This was achieved through foreign investment and international trade, causing improvements in living standards, growth in per capita income, and the decline in poverty in China.
The maps below indicate China’s major industrial and commercial cities, including Chengdu, Shanghai, and Tianjin – areas of great economic growth and development.
GLOBALISATION STRATEGIES UNDERTAKEN (PRE GFC)
After the death of Chairman Mao Tse Tung (or Zedong) in 1976, Deng Xiaoping was anointed the new Chairman of the Chinese Communist Party. Between 1978 and 1997, Xiaoping introduced economic reforms and strategies in attempts to promote and rapidly expand globalisation and improvements in economic growth and development within China’s economy, through industrialisation and modernisation.
Agricultural Reforms
The Chinese government used agricultural reforms to promote globalisation and improve economic growth and development. This was achieved through de-collectivisation and disregard of the commune system of agriculture, which was replaced with the ‘Household Responsibility System’. This newer system enabled households to independently produce their own products, and create a surplus which would be sold in free markets, ultimately causing rises in food production, income, and industrial output, as farmers in China had no longer had any restrictions regarding crops, meaning they could plant crops according to their advantages.
Changes To Trade And Foreign Investment
Through the 1980 ‘Open Door Policy’ and Special Economic Zones (SEZs), China was encouraged to modernise its industry to attract foreign investment, in order to enhance its economy. This policy consisted of low tax rates, cheap labour, and exemption from import duties. These reforms to trade and foreign investment resulted in the increase of China’s Gross National Product (GNP): from 10% in 1978 to 36% in 1996.
Taxation Reforms
To improve the efficiency of tax collection and finance of public infrastructure spending, taxation reforms were introduced in 1994; causing modifications in the ability to collects taxes – moving away from provincial governments towards Beijing’s central government. This meant that taxes were managed by a central government instead of multiple provinces, allowing for a more efficient method of allocating assets.
Cuts To Protection
In order to improve economic growth, China’s government implemented cuts to tariffs as well as other forms of protection in 1992, with intentions to stimulate domestic efficiency through direct import competition. China cut its average tariff rate from 39% to 19% in 1996, and down to 15% in 2000. Cuts to protection correlate with the Open Door Policy, providing China with the opportunity to attract foreign investment as well as establish its domestic market amongst foreign competitors.
Membership Of Economic Forums
In 2001 China became a member or the World Trade Organisation (WTO), permitting global marketers to access their domestic market and China to access the markets of other member countries. This access benefited China, promoting globalisation and economic growth and development by encouraging innovation and utilisation of technology, attracting foreign investment into the Chinese service sector, and diversification of its export base within its domestic economy.
Adjustments To Exchange Rate
On July 21st 2005, China transitioned from a fixed exchange rate against the US dollar to the Managed Exchange Rate of the Renminbi (RMB) which converts China’s currency (Yuan) to currencies of their major trading partners like the US dollar, Australian dollar, Yen, and euro. The RMB was considered undervalued which generated international competition for Chinese imports and exports. This competitiveness led to the expansion of China’s domestic market and increases in income, prompting globalisation and economic growth and development.
Investment In Fixed Assets (Domestic Infrastructure)
In a matter of decades, infrastructure investment in China has rapidly risen, having a positive effect on drastically improving economic growth, development and quality of life. Since the early 1990s, China has invested a considerable amount into the quantity and quality of infrastructure due to urbanisation and an increase in population, with the need to provide transport and employment. The Chinese National Bureau of Statistics states that since 2004, 25%-35% of China’s total fixed asset investment has been devoted to infrastructure investment.
IMPACT OF GLOBALISATION STRATEGIES ON CHINA’S ECONOMIC GROWTH
Through the implementation of different globalisation strategies and reforms like the Open Door Policy, taxation reforms, agricultural reforms, and joining the WTO, China’s economy has managed to positively impact on its economic growth, despite the obstacles presented by the Global Financial Crisis (GFC) of 2008.
Between 2000 and 2009, China has maintained a high rate of average annual growth in real GDP – 10.3%, with its peak of 14.2% in 2007, and because of the GFC which affected China’s exports and foreign investment flows, a decline to 9.2% in 2009. As a response, the Chinese government introduced a $586 billion fiscal stimulus package; its purpose being to keep the growth target at 8% during 2009 and 2010, and to lift domestic consumption and investment. To achieve this, infrastructure projects were arranged to calibrate export growth. This was successful as in 2010, the economy grew to 10.6%.
The four main ways in which China’s economy has developed are:
Transitioned from a planned/socialist economy to a market/capitalist economy
Has a trade-focused economy (as a result of globalisation), instead of domestic based
Was an agricultural economy with a rural based peasant society, but is now an industrialised economy with an urban based society with rising middle classes
Is an important world economic power, contributing to global output, economic growth, trade and investment to a great extent
In terms of GDP China is the second largest, with the first being the USA, however in terms of GDP in PPP, it is the world’s largest economy. This was possible through globalisation strategies like the Open Door Policy, with China's economic growth has being improved, proving that these strategies have been effective.
POSITIVE IMPACTS OF GLOBALISATION STRATEGIES ON CHINA’S ECONOMIC DEVELOPMENT
NEGATIVE IMPACTS OF GLOBALISATION STRATEGIES ON CHINA’S DEVELOPMENT
Although globalisation strategies have had numerous positive impacts on China’s economic development, there are also aspects that have negatively affected the country; the uneven distribution of income and the issue of environmental sustainability.
Inequality In The Distribution Of Income
Within the last 20 years, real household incomes in China average at an annual growth of 10%. In conjunction with the growth, there has also been a rise in the distribution of income in China (income inequality). The Gini coefficient measures income inequality of a country on a scale of 0 to 1 (the greater the number, the higher the income inequality); China recorded a 0.3 in the early 1980s, however that statistic has risen to 0.5 as of 2015. This climb in data, demonstrates the concept of urban/rural income gaps and significant geographical distinctions between varying provinces; larger cities and towns in eastern and southern China have higher per capita incomes in comparison to central and western rural areas.
Coastal urban areas like Shanghai and Beijing are located near Special Economic Zones, which grants them the ability to participate in expeditious economic and employment growth and rising incomes, with annual growth at 13% in the 1990s. Unlike coastal urban areas, north western districts, like Tibet do not experience high levels of economic growth and have annual growth rates up to 5 times less that of coastal areas.
This contrast in economic growth; coastal and urban regions growing at a constant speed whilst rural regions grow at a slower pace, also affects HDI levels and economic development – there is a great range in life expectancy, income and literacy rates.
Environmental Sustainability
Although China has been able to sustain rapid economic growth, this has led to many environmental issues regarding resources and environmental degradation, like resource depletion. A 2007 report conducted by the OECD on China’s environment has provided estimates that by 2020, there will be 600,000 premature deaths in urban areas and 20 million cases of respiratory illnesses a year if China continues to operate at this rate and pollution emission is not managed. It also states that China loses 7% of its annual GDP as a consequence of pollution, with the prospect of this figure rising to 13% if China doesn’t intervene and initiate stronger environmental laws. The pie chart above displays the effects of air pollution on the citizens of China throughout 2013; a total of 189 (or 51.8%) days of poor air quality in a year.
In 2012, China’s carbon dioxide emissions exceeded the USA’s by 96%, coming in at 10,292 million metric tonnes. Factors that contributed to this amount include gas, electricity, and cement production. The diagram below is from China Water Risk in 2016 and highlights the water stress levels of different regions in China, with dark red representing excessively high levels whereas low percentages are a light shade of yellow. It also gives percentages of coal output and power generation of various Chinese cities.
In attempts to cut pollution, China has reduced their reliance on coal fired power stations and persuaded households and firms to used gas for heating as a replacement for coal. China’s goal by 2021 is to implement a nationwide carbon trading system and remove 70% of coal fired heating systems in the northern cities.
The extent of China's environmental concerns does not end at air and carbon pollution. Other widespread issues include:
deforestation (loss of natural grasslands and forests)
Contaminated water (300 million people consuming contaminated water each day)
Water shortages because of drought and poor irrigation systems
Water pollution from untreated waste and sewage
14% of China is currently made up of forests. These are prevalent throughout the north, south and central mountain parts of China. China has faced the issue of deforestation, with continual illegal logging which destroys 5,000 square kilometres of forests every year. In the last 20 years, forests have been reduced by half, with the majority of these acquired resources being used for the production of chopsticks, table-tennis rackets, and toothpicks. There has been a 4% decline in rainfall; deforestation being held liable.
To tackle this issue, China has banned logging in natural forests and contributed $10 billion towards reforestation schemes, and introduced a 5% tax on many wooden products like floorboards and chopsticks.
CHINA’S NEW GROWTH AND DEVELOPMENT STRATEGY (POST GFC)
“China's economic performance after the GFC lead to it adopting a “new” growth strategy designed to “transition” its economy to domestic sources of growth rather than a reliance on an export-oriented trade strategy.”
This new strategy involves establishing a stable supply or resources and directly investing in markets overseas. With this strategy, China intends to shift its economy towards a more “non-inflationary growth” and away from investment and export growth. This can be achieved through an expansion in household consumption.
The “One Belt, One Road” programme was introduced in May 2017 with the intention to build trade infrastructure, and trade linkages and investments from countries in Asia to Europe, Africa, and Oceania.
Bibliography
Websites:
http://worldpopulationreview.com/countries/china-population/
https://www.populationof.net/china/
https://tradingeconomics.com/china/gdp-per-capita-ppp
https://www.topchinatravel.com/china-guide/top-7-business-cities-in-china.htm
http://factsanddetails.com/china/cat10/sub66/item389.html
Textbooks:
http://etheses.lse.ac.uk/3264/1/Marden_Agriculture_development_and_structural.pdf
https://www.rba.gov.au/publications/bulletin/2014/jun/pdf/bu-0614-4.pdf
Worksheets:
Source 1
Source 2