Tremendous economic growth

Brief Overview of the Economy:

  • China is enjoying tremendous economic growth.
  • Since 1980, it has grown faster than any other country in history
  • China now accounts for 13% of global gross domestic product (GDP), based on purchasing power parity (PPP) exchange rates
  • China has been the world's producer of light industrial goods like textiles and toys for many years now
  • It is however shifting it's focus onto more highly valued exports like capital goods.
  • Although China has never been a large component of the automotive industry, investors are now looking to china due to the cheap production costs.
  • China's exports increased from US$13.7 billion in 1979 to US$437.9 billion in 2003, while its imports increased from US$15.7 billion to US$413.1 billion during the same period.
  • China's share in merchandise exports in the world (excluding trade through Hong Kong) almost quintupled from 1.2 percent in 1983 to 5.8 percent in 2003. If re-exports through Hong Kong were included, then by 2003 China's exports constituted 8.6% of world merchandise exports. That would have put China above Japan to become the third largest exporter in the world, just behind the EU and US.
  • As China begins producing more high valued goods, their demands for resources has greatly increased.
  • China is responsible for about 1/3 of the worlds consumption of oil

China FDI 1991-1997

  • 54.6% Hong Kong
  • 8.9% Taiwan
  • 7.9% Japan
  • 7.6% USA
  • 4.3% Singapore
  • 3.0% Korean Rp.
  • 13.6% Other.

China FDI 1997-2003

  • 45.6% Hong Kong
  • 8.9% Taiwan
  • 7.9% Japan
  • 7.6% USA
  • 4.3% Singapore
  • 3.0% Korean Rp.
  • 13.6% Other.

Impacts of Globalization on China:

Economic growth, development, environmental consequences and quality of life.

  • Government has focused on foreign trade to drive economic growth and development
  • Some economists believe that the levels of economic growth in china have been greatly underestimated.
  • In 1949 (Big Push), the Chinese government began heavily investing in heavy industry. It took control of large parts of the economy, and redirected finances into new factories.
  • Since 1978, China has been eager to exploit it's newfound industry and became one of the largest exporters of light industrial goods.
  • It tried to combine central planning with market-orientated reforms to increase productivity.
  • In the medium-term, economists state that there is ample amount of potential for China to maintain relatively high economic growth rates and is forecasted to be the world's largest exporter by 2010.
  • In 2008 the Chinese winter storms, the Sichuan earthquake, and the south china floods slightly decreased the levels of economic growth due to the damage to infrastructure.
  • Due to the large amounts of growth, there has been severe damage to China's environment
  • China is importing large amounts of resources from Australia and African countries to fuel it's booming production factories.
  • Export growth has continued to be a major component supporting China's rapid economic growth.
  • Despite China's impressive economic development during the past two decades, reforming the state sector and modernizing the banking system remained major hurdles.
  • The State constitution of 1982 specified that the state is to guide the country's economic development by making broad decisions on economic priorities and policies.
  • China adopts the "five-year-plan" strategy for economic development. The 11th Five-Year Plan (2006-2010) is the currently being implemented.

Distribution of Wealth

  • At the beginning of the C20th, the Chinese government has tried to distribute the wealth between both the urban and rural areas in an attempt to maintain economic growth and development while improving social justice.
  • The "West-to-East Electricity Transmission," the "West-to-East Gas Transmission," and the "South-North Water Transfer Project" are the government's three key strategic projects, aimed at realigning overall economic development and achieving rational distribution of national resources across China.

Trade, investment and transnational corporations

  • As its role in world trade has steadily grown, its importance to the international economy has also increased apace. China's foreign trade has grown faster than its GDP for the past 25 years.
  • Although China has acquired some highly sophisticated production facilities through trade and also has built a number of advanced engineering plants capable of manufacturing an increasing range of sophisticated equipment, including nuclear weapons and satellites, most of its industrial output still comes from relatively ill-equipped factories. The technological level and quality standards of its industry as a whole are still fairly low.
  • In the 1980s, restraints on foreign trade were relaxed and joint ventures encouraged.
  • In the early C21st, China's total trade in 2006 surpassed $1.76 trillion, making China the world's third-largest trading nation after the U.S. and Germany. Such high growth is necessary if China is to generate the 15 million jobs needed annuallyroughly the size of Ecuador or Cambodiato employ new entrants into the job market.
  • The Chinese economy is significantly affected by the 2008-9 global financial crisis due to the export orientated nature of the economy which depends heavily upon international trade.
  • In the early 1950s, the foreign trade system was monopolized by the state. Nearly all the domestic enterprises were state-owned and the government had set the prices for key commodities, controlled the level and general distribution of investment funds, determined output targets for major enterprises and branches, allocated energy resources, set wage levels and employment targets, operated the wholesale and retail networks, and steered the financial policy and banking system.
  • Foreign trade is supervised by the Ministry of Commerce, customs, and the Bank of China, the foreign exchange arm of the Chinese banking system, which controls access to the foreign currency required for imports.
  • Ever since restrictions on foreign trade were reduced, there have been broad opportunities for individual enterprises to engage in exchanges with foreign firms without much intervention from official agencies.
  • The (Peoples bank of China) PBC is responsible for international trade and other overseas transactions.
  • Wheat, corn (maize), tobacco, soybeans, peanuts (groundnuts), cotton, potatoes, sorghum, peanuts, tea, millet, barley, oilseed, pork, and fish. Major non-food crops, including cotton, other fibers, and oilseeds, furnish China with a small proportion of its foreign trade revenue.
  • In the 1970s and 1980s, the Chinese Government began opening the economy to increased foreign trade and foreign investment.
  • China's growth comes both from huge state investment in infrastructure and heavy industry and from private sector expansion in light industry instead of just exports, whose role in the economy appears to have been significantly overestimated.
  • Although the total amount of foreign-funded projects in China has dropped since late last year, noted transnational corporations and consortiums have kept increasing their investment in the country.
  • At present, more than 200 transnational corporations have come to invest in China and their projects are found across the country either in coastal areas or inland ones.

The International Business Cycle

  • China's economy is growing by leaps and bounds because of its abundance of inexpensive labour. However, as its economy grows, labour is becoming more expensive, forcing manufacturers who outsource to China to look elsewhere. Right now the "next China" is Vietnam, whose economy is the fastest growing in the world. In fact, Nike is currently relocating its production facilities there rapidly.
  • Urban coastal areas are seeing the benefits of China's new openness with increasing wages and a corresponding standard of living. But wages remain relatively untouched in the inner, western provinces.
  • This is exactly why China has introduced economic incentives for businesses to expand in these areas. However, the lack of adequate infrastructure has made the region too expensive for western manufacturers to build new manufacturing centers there. This dilemma only adds to the many pressures China currently faces, increasing risk for western investors.

Two Strategies Use by Governments to promote economic growth and development

  • Increasing the number of jobs within an economy.
  • Increase the levels of infrastructure.



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