How has Economic Globalisation Influenced the Chinese Economy?
The paper starts from when China was made the Republic of China, which happened in 1949. At that time the population of China was assessed at 500 million. The whole world looks at China as a nation that has the third rank globally in terms of the economy. Along with this China is a member of the UN Security Council. Apart from this China is enthusiastically engaged in other significant organisations as well, examples being WTO, APEC, Shanghai Co-operation and the East Asia Summit. China is also nuclear based and it has the largest defence budget for the army globally.
The introduction of reforms in 1978 allowed for China becoming a segment of those couple of states that were rapidly moving towards the economies that were expanding at a fast pace. China is also to the lead in the area of exporting and importing of products. The figures on the website of The World Bank signify that the rate of poverty has decreased since 1981 to 2001 from a 53% to 7% (The World Bank, n. d. ). This has happened because of the industrialization section of the country. Motivation The motivation behind writing this essay is to provide with a
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The various issues and factors are to be considered and pondered upon along with reviewing the so much of literature present on this topic. Research Question The research question of this project happens to be: How has economic globalisation influenced the Chinese economy? Smaller Objectives Apart from the main research question, that is an insight into the effects of globalisation on the Chinese economy, there will be other smaller objectives to be followed in this essay. These include offering with a detailed analysis of the economic reforms that took place in the country and their effects.
Also, the economy’s progress will be talked of. Chapter Outline In the coming chapters there will be discussion in length about the 1979 economic reform background, the government policies, economic theory, bank of China, central bank monetary policies, literature reviews of how China’s economy has been affected by globalisation and at the end an analysis of the different globalisation variables. Background Post 1979 Economic Reforms Economic reform is a particular programme that leads to an improvement in the financial happenings of a country.
In the People’s Republic of China it was called “socialism with Chinese characteristics”, and took place in 1978, first envisaged by Deng Xiaoping (Lal, 18, 2006). The aim of these reforms was to bring about surplus generation as that would allow for the finance of the Chinese economy. The economic reform had a challenge of finding a resolution for the difficulties of encouraging workers and for the farmers to be capable of producing extra that would be sufficient for the eradication of the inequity that was present in the economic sector (Overholt, 1994).
Without a doubt there has been a reduction in the poverty since the reforms were undertaken. Although there was this belief of the Chinese economic reforms being a restoration of capitalism, it was actually a type of socialism. In the case when it would have been called capitalism, it would have created a significant difficulty for the government in that that it would have brought about the issue of the legitimacy of the regime.
The first reform took place established on the reality that global trade would initiate which would allow for the agriculture to be bringing about a domestic accountability scheme; and this would enable the selling of the extra agricultural produce in the open marketplace (Chen & Huang, 1999). The reforms were initiated in 1979 – the time when the communist system had been don’t with because it was not helping in the progress of the lifestyle and standards of the Chinese, and also because it did not assist in bringing China close to the industrialized states.
This performance was termed as bad when thought of the fact that Soviet had the power since as long as 1950 (Overholt, 1994). Therefore, in the 1980s and the beginning of the 1990s, the reforms aimed at establishing a price scheme that was to substitute in the nation in resource allocation. Coming of the 21st century brought about further importance being placed on the banking system. The central bank was the People’s Bank of China.
This bank and the government wished to do away with the gap that was present between the financially handicapped and the rich – this was an aim shared by both (Frey, 1978) and this lead to a lot of betterment. The first strategy implemented concerned the farmers and the next was about the open door policy that allowed for global trade and foreign direct investment (Green, 2005). This action allowed the Chinese government to boost its economy and later it turned to be an important support for the other reforms.
By the 1980s another stage came about and it aimed at converting the economy from being run as an administrative to an economy driven by price. Although this was not easy to attain particularly by employing the dual track scheme that was used for pricing, with time the products were shared and the market prices were raised drastically (Garnaut, 2001). Till as late as the end of the 1980s the economy had been experiencing several changes; steadily it moved out of the central planning and went into the market economy.
The introduction of the scheme in the agriculture sector enabled the families of the farmers to work on a piece of land under contract and to keep the revenue that they managed to get. This was a great triumph of the economic reform. With the arrival of 1984 there had been a drastic increase in the production of food and at long last, after two decades, China’s socialism was over. Globalisation and Development in China Globalisation had an extensive influence on the economic growth of China.
Since the last two decades, China’s global trade had increased by sixteen times and it ranked 7th in the world, as compared to 32nd previously. Trade reliance rate rose from 10 percent to 36 percent. The current total of Foreign Direct Investment ranks the highest in all developing nations. As indicated by a modular analysis on the synergy of Foreign Direct Investment that was lead by the Development Research Centre of the State Council, China’s Gross Domestic Product had a record of a mean yearly growth rate of 9. 7 percent over the last two decades. Of this 2. 7 percent was credited to Foreign Direct Investment.
With the exception of using similar figures to exhibit the influence of globalisation on the Chinese economy, it is recognized that incorporation with the global economy is involved to bettering the Chinese economic framework, increasing the pace of the establishment of the market economy, and increasing the level of business authority and technological ability, and also optimizing its human capital. The effects of globalisation on China’s economic growth have been significant. Through globalisation we are presented with a world that is very much opened up and market-oriented (Dittmer & Liu, 2006).
Along with this, it also causes exaggerated rivalry and a much higher extent of interdependence. Each and everyone have to be learning to modify in order to adjust to the ever increasing aggressive environment, and organize and collaborate with others in line with the new laws. Therefore, the exercise of the various governments would ultimately be confronted. Whichever government advances to go forward with techniques or strategy evaluation and organization, economic globalisation is certainly a significant element to be considered.
The Chinese government has taken over a succession of intentionally important strategies to be able to deal with the challenge of economic globalisation. Some of them are re-amendment of the economic framework by increasing the pace of the expansion of the high technology areas and the western regions; alteration of the design of economic growth by reinforcing Information Technology education and sustainable expansion and also further expansion of the outward-oriented economy which they did by executing “come in” and “go out” policies.
Apart from this, the government is strengthening reform in SOEs and government management with an aim of establishing a leading method conforming to worldwide rules and exercises. Such strategies clearly assist China’s further incorporation into the worldwide economy. Economic globalisation forms cross-boundary influence on the economy and government of any nation. If a ruling administration is responsible, it should maintain the theory of upholding the constancy and growth of the world economy. It is apparent that the Chinese government is responsible.
Its economic strategies serve to fulfil the requirements of China’s economic development and also consider the probable influence on the world. An ideal example is its reaction to the Asian economic turmoil. The accomplishment of the open door policy has uplifted the Chinese people’s confidence along with establishing a liberal thinking in the nation. The Chinese attribute the success to the liberalization that has since almost always been their main aim. Similar to other countries, China may also possibly have a distinct understanding of globalisation and certain particular concepts to deal with the confrontations that arise from it.
However, not many Chinese would support the return to isolationism and even fewer would recommend shutting the door of the nation. The newly-propagated Tenth Five Year Plan evidently shows what China’s approach to economic globalisation is (Zhang, 79, 2003). The concept of the strategy is described as that in the 21st century, with increasing globalisation, the Information Technology trend, increasingly economic reframing, growing worldwide rivalry and essential alterations in the global economy, specifically its forthcoming attainment into the WTO, China is obviously dealing with massive opportunities and great confrontations.
On the whole, this kind of a concept will direct the potential path. Certain scholars have even stated that the Tenth Five Year Plan is in reality a concept for addressing the confrontations of China’s attainment to the WTO and globalisation. Government Economic Policy for Managing the Economy In this section a discussion of China’s economy will be presented. Talking about it, the country has a gross domestic product of around $7. 8 trillion and that makes it the second biggest globally.
The government took an intelligent decision in permitting China to operate side by side with other firms on a export level, and this had enabled China for entering into a level of rivalry with different other export-led economies, for example Malaysia and Singapore. Along with this it has also concentrated on the economic expansion by means of foreign trade. Ever since 1949, till 1980, the government had a total possession over the important area of the economy and was employing its resources so as to construct newer and improved factories.
Economic expansion was provided with uplift due to the new industries that were constructed. These changes were taken place during the 1950s and the 1960s, when the first 5 year plan policies had been introduced. There were more modifications occurring in the Chinese economy in 1979. The government intended to reduce the role of ideology in the financial policy, and the government increased the salaries and expenditures and initialized a new scheme of raising productivity.
China’s economy continuously grew at a rate of 10 percent annually from 1990 – 2004, even though the government had been attempting to lessen it. China was 3rd in rank with Germany and USA being the only countries to our perform it. It had a surplus of $1. 76 trillion. The strategy that the government had taken up for the management of the economy was that it would have less part to play, the mangers would be offered with more decision making authority and also that the enterprises would be supported for the manufacture of products for profit and the part of the private sector was raised.
The restraints that were rooted in the foreign trade were settled down to a great extent and cooperation in working, that is, in joint ventures, was supported and promoted (Garnaut, 2001). Economic Theory The procedure, through which the central bank or the government can manage the supply of money plus also the accessibility of it, is the monetary policy. Through this policy the two organisations can also be modifying the rate of interest. So as to be able to attain the desired goals towards the expansion of the economy, the monetary strategy permits an individual to observe into how optimal monetary policy can be dealt with (Green, 2005).
Two kinds of policies can be undertaken by the government or the central bank, and these happen to be expansionary policy and contractionary policy. The former one is for an increase in the general supply of money in the market, while the latter is to reduce the supply of money. Expansionary policy is put into use when the government wishes to struggle against unemployment which had been rising in China because of inflation. This is done by lowering the rate of interest.
Contractionary policy raises the interest rates so as to struggles against inflation and this happens to be the main reason for the decline of an economy (Green, 2005). In order to use monetary policies properly and with success, it is necessary that the government knows that this is established on the relationship occurring between the rates of interest in an economy. The interest rates are seen to be the expense at which an individual can have a loan of money along with the total supply money that is involved.
A great diversity is employed by this strategy so as to cast an impression upon the result of the economic expansion along with inflation. Monetary policy is so very powerful that it is capable of changing the money supply along with affecting the interest rate so as to attain an aim of policy (Garnaut, 2001). Other methods of seeing to it that the monetary policy is in progress are also there which comprise of discount windows or the deposit lending option. The central bank has the capability of influencing the interest rates and it can do this by raising the monetary base.
This base consists of money and banks’ resources on credit at the central bank. The optimal way that the central bank can carry on so as to influence the monetary base is by means of open market operations sales and also by purchasing second hand government debts, or even by altering the reserve requirements. When the central wants to lower the interest rates it would purchase government debts as this leads to a raise in the amount of money that is being circulated or on the base of crediting by means of the banks reserve accounts.
This policy can also be used for causing a reduction in the interest rate that is available on discounts. As an example it can be mentioned that, it there is a low interest rate on those purchases, the commercial banks are allowed to borrow from the central bank so as to enable them to meet their requirements and to use the added liquidity to facilitate the increase on their balance sheets, with a raise in the credit that is easily accessible to the economy. In the case when reserve requirement is lowered, an identical effect results (Fair, 1979).
The People’s Bank of China was established in 1948 and the next year the communist party merged with all the banks to form the Bank of China. It was made the head of the whole country’s central banking. However, this did not continue for long and the commercial bank was split into four divisions. Bank of China performed the role of a main bank for 5 years; in 1995 it was established as legal (The People’s Bank of China, n. d. ). In relation to the previous times, the 21st century provided the bank with a much more significance as its performance had started gaining recognition.
It is evident that China has been expanding rapidly due to the economic reforms that were introduced. The concentration of banks appears to be a greatly improved and strengthened economic policy. In spite of the fact that the plan of the bank of China as compared to the Federal Reserve is very much similar, still there are disparities that come up in the form of the bank of China’s freedom. Any decisions that are made by the bank are essentially to be approved by the State Council.
Due to this restrain on the banks, it very often happens that the banks decisions are left suspending in the air which discourages and disappoints the bank. The bank has a significant function of keeping a proper balance of the monetary policy. To be able to keep the balance the bank has to be making sure that the country’s capital is dependable and the economic troubles are all solved. When talking about monetary policy it is a requirement to be alert about the fact that a central bank has the ability to operate a free monetary policy whenever the exchange rate is in a well position.
In the case when the exchange rate is not going in the desired direction, the central bank would be forced to purchase or even sell foreign exchange. In the case when rate is directed, the bank would have to sell or purchase the foreign exchange so as to allow itself to keep up its monetary aim, because of the fact that the central bank has to be using its foreign exchange processes. For example, if a central bank purchases foreign exchange, the base money will increase.
Therefore, to be able to counterbalance the increase, the central bank would have to sell its government debt which would allow it to tighten the monetary base by a similar amount. Unsteady performance in foreign exchange markets can probably allow for causing a central bank to do away with its authority over the local economic policy when it is simultaneously the exchange rate too (Frey, 1978). It is a requirement that the authorities making these policies are reliable enough, that is, they should consider that such statements would in reality influence the actual future policy.
In the case when a declaration is made in relation to the low level inflation aims and the private mangers do not have the capability to understand it, those who fixed the salaries would suppose that the high-level inflation and incomes would rise. A high wage would augment a consumer’s requirements and the firm’s expenses when there is a rise in inflation. In the case when decision makers consider that the agents have supposed for minimum inflation, the government has an intention to execute an expansionist monetary policy.
Nevertheless, if the assumption is made that the managers have acceptable expectations, they know that the decision makers have this encouragement. Since several decades the western states were fascinated by the unexploited population that was in China in search of profits. When China opened up to the West, it made do with achieving a great raise which is visible in the expansion of China that is very much worked up and concerns with novel and modern financial policies. Literature Review The topic under discussion is influence of globalisation on China’s economy.
In this section an analysis and review of the various literature existing on this topic will be made. China had speedily expanded by means of privatization and globalisation in the direction of a communist government. It was in 1978 that the Chinese reforms were initiated and it was after the death of Mao Zedong (Hoang & Liao, 2002). He was the father of communist China and was responsible for maintaining the significance of philosophy as a main factor for the expansion of China. Later, it was under the direction of Deng XiaoPing that China expanded at extraordinary rates.
Hoang & Liao (2002) deduce that through the economic influence of globalisation in China it is witnessed that globalisation can prove to be advantageous to the expansion of developing nations. It can also improve the control of domestic governments. At the same although globalisation has adverse effects as well – like, some internationals may take advantage of their employees, domestic organisation would be in more danger from capital flows, there is the danger of social unsteadiness rising – the advantages to trade are still backed up by the majority of cross-boundary empirical information.
These authors conclude that while the way through which expanding nations can at the best use intercontinental finance and markets should stay a matter of worry and further investigation, the assertion that globalisation is just a source of troubles is not justified. One of the significant peculiarities of the Chinese development is that it occurs in a context of globalisation. Relative to the already expanded nations’ history, it can be said that China is the “first great economy that achieved economic development under a pattern of globalized expansion” (Gang, 2008).
China has incorporated itself in the global economy system, received foreign direct investments and steadily opened its market. This way of development is essentially a passive one and does not provoke disputes neither does it prefer a closed economy sanctifies to inside development. Indeed it is a way of development attained within the structure of globalisation, by means of appreciation of interdependency and mutual restrictions. The development as such is then mutually advantageous, and this is a major dissimilarity with the procedure of financial rise of several other countries.
Gang (2008) writes that even after three decades of monetary expansion, China is as yet a poor developing nation with a per capita Gross Domestic Product of 2000 dollars. For China to develop it requires a passive setting. It is required to incorporate into the international market. Also, it is needed to take its duties to the extent to which a large expanding nation can. However, China also requires that the intercontinental commune appreciated the confrontations and dangers that a large developing country would face.
It also requires that intercontinental governance structure develops by considering the well being of the expanding nations. If such circumstances are present it would result in a more passive globalisation. Chow (2005) writes about the foreign trade in China and says that it has assisted the country in economic development in three ways. The first aspect he mentions is that international specialization which happens when every nation manufactures the products in which it has a comparative advantage in manufacturing allows the nation to attain more products than solely through domestic manufacturing.
Secondly, Chow mentions that exports are a component of total demand a rise in that demand allows for a rise in the state’s national productivity. The third feature is that trade along with foreign investment has allowed for the bringing in of modern technology as well as a way of direction which has allowed for an increase in output in China. Analysis China’s economy experiences plenty of modifications since the last few decades. There has been a change in the evolution of the country from a centrally planned system to a growing market oriented country.
The former was quite near in the international trade. The latter has been developing as a private sector as well as a main contestant in the intercontinental economy. China has on the whole put in practice reforms that include the trade of minority shares in China’s four large state banks to foreign supporters along with improvements in foreign exchange and bond markets. After the upholding of its currency in relation to the US dollar for a short time, China revalued its currency in 2005 by 2. 1 percent beside the US dollar and moved to an exchange rate system that recommends several currencies.
Increase beside the US dollar, from the time when the dollar peg was over, went up to 15 percent in January 2008. Because of the improvement in the economy and the resulting competency gains, the Gross Domestic Product went up by greater than ten times ever since 1978. In the case when purchasing power parity (PPP) basis is used for measurement, the result would be that China would be found to be the largest economy globally in 2007, after the United States. Nevertheless, in the case when per capita income is taken into account, China is still in the lower middle income category.
Inflows of foreign direct investment in 2007 rose by $75 billion per year. This assisted the Chinese businesses as it is a fact that by the end of 2007 there were more than 5000 domestic Chinese ventures had established direct investments in 172 states. Therefore, there were several economic expansion tests which were placed leading the Chinese government. They are as follows: • To preserve acceptable job advancements for each of the millions of managers who had lost their jobs due to state-owned ventures, migrants, and new applicants to the employee department • To reduce the dishonesty as well as other economic crimes
• To have environmental damage along with societal dispute relative to the economy’s rapid development. In 2007 the government of China attempted at bettering the environmental condition. To achieve this, the government merged the evaluation of district officers to environmental aims that allowed for the proposition of national climate change policy. Along with this there was a high level leading meeting constructed on climate change. The Chinese government desired to raise energy production by means of various sources other than using coal and oil due to the fact that its developing economy had a raised demand.
By 2007 the energy officers of China had agreed upon allowing the buying of five third generation nuclear reactors. It was the Western organizations from whom they bought the products. In the previous year there had been power generating capability happening for the sake of wide scale investments. There are figures present according to which the mean rate at which the Chinese economy grew was 10 percent annually during the years 1990 and 2004. In January 2009, the World Bank revised the figure for the year 2007 monetary year to 13 percent, instead of the previously established 11. 9 percent (China Daily, 2009).