Chinas Growing Economy Essay Example For Students

Chinas Growing Economy Essay After North America, Europe, and Japan, the area of China, Taiwan, and Hong Kong is a fourth growth pole in the world economy (Jue 108) which in 1994 was expected to double in size by 2002. Today, the growth rate is still on track to fulfill that prediction. Recent Chinese economic policies have shot the country into the world economy at full speed. As testimony of this, Chinas gross domestic product has risen to seventh in the world, and its economy is growing at over nine percent per year (econ-gen 1). Starting in 1979, the Chinese have implemented numerous economic and political tactics to open the Chinese marketplace to the rest of the world. Chinese reform measures even anticipated the rush of foreign investment by opening newly expanded industries to out-of-country investors. As trade expands globally and countries within geographical proximity and of similar cultural descent and philosophies ally themselves in order to better compete on a world level, we are seeing the develop ment of increasing number of geographical trade alliances, whatever the underlying reasons behind each. The alliances that have been in place for a while are proving to be very successful in competing in the international markets, stimulating the economies of nearly all of their member states. Effects of this change in economic strategy by a world power can be felt by practically every nation of the globe involved in international trade. The change in the amount of imports and exports to and from China will increase the demand on countless markets. Also, with all the foreign investment China is receiving, the socialistic republic will only grow more and more interdependent upon the world economy. However, the impressive growth rate of Chinas economy is not without its shortcomings. Problems such as inflation and inefficient state-owned enterprises plague the rise of the Chinese economy. When China opened its economic borders 19 years ago, environmentalists spoke of the efficiency of their farming systems and how they used hardly any organic fuels in the production of food for their people relative to some of the other countries of the world-most notably the United States. What they neglected to mention, however, that one farmer at the end of one rake struggling to feed his family kept fuel consumption very low indeed. It was not, by any stretch, efficient. Matching conditions still exist today. Rumors of the wonderful prosperity of the south and eastern provinces have reached the more isolated-and less prosperous-interior provinces. Those current farmers who would travel in order to be more prosperous themselves are often stopped at the borders of industrial growth and made to turn back. Everyone in China seemingly wants a share, but the industrial provinces can physically support no more drain on their existing housing and infrastructures, and they are finding themselves unable to enhance their current positions despite their economic prosperity. When examining an issue, it is imperative to honestly look at all sides, and not all of Chinas sides are forthcoming. The country has indeed become more open toward foreign investment, and in fact openly courts it. China have been known to have placed several restrictions on the multinational companies that have opened operations within their borders, but they are generally not so restrictive as to be prohibitive. For example, after IBM accepted Chinas conditions regarding the true ownership of IBMs facilities and environmental rulings, it seemed that all of the rest of the world wanted to join in. Deng Xiaoping called Chinas entrance to and courting of the industrialized world crossing the river by feeling for the stones (The Economist 26). In feeling for the stones, Chinas already realized economic transformations have vastly improved the lives of hundreds of millions of people (The Economist 26)- Chinese people. Economic measures instituted by Deng Xiaoping have been grouped together, under the general term of gradualism, but many observers now say that in order for China to continue its double-sized growth over the long term and to rectify the problem of the state industries that are losing billions of dollars, economic shock therapy needs to be administered, and quickly. But the current plan of Chinas President Jiang Zemin and his advisors includes no such shock therapy. It does include, however, divesting the government of all but one thousand of the more than three hundred thousand state-owned businesses that have cost the Chinese government $85 billion in looses over th e past ten years. The following chart shows the distinctions of several of Chinas economic indicators, and their changes since 1987. Table 1. Selected Economic Indicators(Billions of dollars)Factor 1987 1997 Change Gross Domestic Product 300 610 610 Merchandise Exports 30 180 150Foreign Investment 2 48 46Hard Currency Reserves 25 128 103Losses of State-Owned Industries 3 88 85(Business Week, Sept. 1997)From the preceding chart, the growth in Chinas GDP over the past ten years in nearly indefinable. Other indicators are highly favorable, with the economys only apparent problem being that of the losses of the state-owned industries. The losses incurred over the past ten years could have served extremely well in furthering the quality of life of the Chinese people, rather than simply supporting the workers in those industries. Those workers represent no small percentage of the Chinese population- there are 100 million workers in those state supported industries that have lost so much money (Clifford et al.). Effect of Caffeine on Heart Rate in Daphnia EssayAlthough Chinese foreign policies is aimed at opening the nations economy to the world, it neglects the agricultural market almost entirely, with the exception of technical contracts. These contracts are designed to improve the transfer of technologies to improve crop yields. Technical Contracts are made between farmers and village economic cooperatives and a wide variety of offices and technical personnel from different administrative levels (fmprc.gov). The funding for the technology used by the agricultural industry can be traced to extension stations of political parties, finance bureaus, or local insurance company. Since the groups funding technical contracts are nothing more than investors, a portion of the profits from increased production due to the technological advancements are returned to these groups. However, the technology providers also bear the risk of investors, if output and economic returns cant reach prescribed fi gures, the extension administrations have to make up the losses(fmprc.gov). Like all good things, Chinas formidable economic growth had its downsides. There are a few detriments like inflation, an under-aided agricultural market, government inefficiency, and geographically uneven development. High inflation, caused by a demand for more exchange medium on the Chinese market is causing Chinese currency to depreciate relative to other national currencies. Currency conversions and management remains a sticking point for many businesses wishing to invest in China. There has been some movement in Asia toward a more uniform level of currency exchange, but not so much that it has affected the difficulties in trading with China. And, a lack of emphasis on the agricultural market is causing that sector of the Chinese economy to fall behind, and soon the supply of agricultural products will fall below the demand for these goods, resulting in a shortage. Another problem is also the inefficiency of large, state-owned production facilities can be explained by excess burea ucratic red tape and corruption. Finally, there has been an uneven distribution of development between the land-licked, western section of China and the industrialized east-coast, consequently causing ineffective land use. A lot of Chinas economic problems seem to be internal, and connected with supporting the massive population while divesting the government of money-losing businesses. Indicative of the overall industrial health of China is the amount of tax the country collected through their industrial and commercial tax in August, 1997. The total collected was $6.5 billion-a 12.9 percent increase over the same period in 1996. Included in the overall tax is a business tax, which grew by 49.5 percent in August, 1997 alone. There are hundreds of American businesses wanting to take advantage of the growth of Chinas business sector. Several US- based, multinational companies already have entered the Chinese market, and now the smaller entrepreneurs would like to be included, too. One of the keys to this movement is that China now claims an emerging middle class, most of which wants American goods (Cross 25). US-China trade has increased by fully 90 percent since 1990, reaching $64 billion in 1996. Befor e Hong Kong reverted to Chinese ownership and rule, US businesses used Hong Kong agents to negotiate with the Chinese government. Now, however, Hong Kong is the international administrative arm of the Chinese government (Barnathan 30). Such negotiations are less certain and requires either the services of an international trade consultant, or at the very least, more than a passing glance at US government-generated tips on doing business in China (Cross 25). Jiang announced that the unorthodox brand of market-driven socialism that has propelled China this far needs a radical overhaul. In one of the most sweeping sets of policy changes since the late Deng Xiaoping unleashed the forces of modernization in 1978, Jiang announced that the state sector is in for a wrenching downsizing (Clifford et al.). Of course, his plan to restructure carries with it the risk of opposition among the workers, particularly those that will be left to fend for themselves. Historically, each governmental liberalization of the past has resulted in a wave of capitalistic activity. Market driven socialism and totally free markets are two very different entities, and the Chinese government is faced with decisions of how much control they will levy on a freer market system. Indeed, Jiangs plan is so sweeping that it could unleash perhaps the largest wave of corporate restructuring, mergers, and acquisitions the world has ever seen (Clifford et al.). Certainly, China is poised to become the worlds next economic super power. Their success in attaining that status will depend largely on how they collectively deal with their existing and future economic issues, however. China recognizes the necessity of radical changes in some of their current practices, most notably the ownership and operation of state enterprises.