Free Essay

Rise of China Economy

In: Business and Management

Submitted By kagana
Words 4916
Pages 20
Foreign Policy Research Institute

FOOTNOTES
Vol. 16, No. 06 The Newsletter of FPRI’s Wachman Center June 2011

THE RISE OF CHINA’S ECONOMY By Thomas G. Rawski
Thomas G. Rawski, Professor of Economics and History, joined the University of Pittsburgh's faculty in 1985 after fourteen years at the University of Toronto. His research focuses on the nature and implications of recent developments and long-term changes in the economy of China. He delivered this paper at A History Institute for Teachers, March 19–20, 2011 on “China and India: Ancient Civilizations, Rising Powers, Giant Societies, and Contrasting Models of Development,” held at the University of Pennsylvania. This History Institute was co-sponsored by The Foreign Policy Research Institute’s Wachman Center as well as by three centers at the University of Pennsylvania – Center for East Asian Studies, South Asia Center, and Penn Lauder CIBER (Center for International Business Education and Research). 1 China’s remarkable economic boom, now in its fourth decade, has spawned numerous discussions of “China’s Rise.”2 Beijing’s self-congratulatory slogan “China’s peaceful rise” has advanced this theme. From a historical perspective, however, this terminology seems misplaced. Both the Ming (1368-1644) and Qing (1644-1912) empires occupied key positions in Asian trade and diplomacy. Crude figures compiled by Angus Maddison, author of several sweeping studies of global economic history, show China contributing nearly one-third of global output as late as 1820. The great boom of the late twentieth century has enabled China to regain some of the global economic weight and leverage that the Middle Kingdom enjoyed during the Ming and much of the Qing eras. The industrial revolution pushed European and North American productivity far ahead of China and India, former giants whose combined share of global output plunged from nearly half to under one-tenth between 1820 and 1950.3 Prior to 1800, Europeans—for example Marco Polo4—viewed China as prosperous and well-governed. As China’s relative economic position eroded, opinions shifted. Both Europeans and Chinese came to view China as a backward society whose very foundations— families, beliefs, values—obstructed progress. Hu Shi (1891-1962), a prominent philosopher who served as China’s wartime ambassador to the United States, summarized this perspective in Chabuduo xiansheng (差不多先生 a witty vignette 差不多先生), 差不多先生 5 portraying Chinese people as incapable of the precise thinking needed in the modern world. China’s recent economic boom, along with the success of Hong Kong, Taiwan, and Singapore, demonstrates that Chinese culture is not inimical to economic progress. Indeed, the opposite perspective, which sees Chinese society as unusually capable of producing individuals who can operate effectively in market systems, helps to explain China’s historic prominence as well as its recent economic surge.

1 The author acknowledges beneficial advice from Lucien Ellington and two anonymous reviewers. 2 For example, C. Fred Bergsten et al, China's Rise: Challenges and Opportunities (Washington: Peterson Institute, 2008); William W. Keller and Thomas G. Rawski eds., China’s Rise and the Balance of Influence in Asia (Pittsburgh, U. of Pittsburgh Press, 2007). 3 Angus Maddison, The world economy: a millennial perspective (Paris: OECD, 2001). 4 The Travels of Marco Polo, available at http://books.google.com/books?id=VovVAAAAMAAJ&printsec=frontcover&dq=travels+of+marco+polo#v=onepage&q=&f=f alse 5 For Chinese and English versions, see http://www.readchinese.net/chabuduoxiansheng

Early work by the late G.W. Skinner (1925-2008), a brilliant and innovative Sinological anthropologist, highlights the economic capabilities of ordinary Chinese before and during the heyday of European imperial expansion. Chinese migrants, many of whom “came to Siam almost straight from the farm,” dominated Thailand’s domestic and international commerce. Skinner explains this in terms of cultural contrasts. In the “Thai universe,” shaped by the ecology of “an underpopulated and fertile land where the requirements for subsistence were […] easily obtained. […] thrift as such was of limited value, and work for its own sake simply senseless.” The migrants hailed from a different universe: “the south Chinese peasant lived in a grimly Malthusian setting where thrift and industry were essential for survival.” Ideology reinforced this divergence: Chinese struggled for wealth to preserve family and lineage continuity, while Thai norms frowned on “excessive concern for … material advancement.” Differences in proverbs tell the story: for the Chinese, “Money can do all things,” but for the Thai, “Do not long for more than your own share.” 6 Recognizing the strength of entrenched Chinese interests, the British forced the Thai monarch to grant them “equal commercial rights as well as additional privileges” in 1855, benefits that soon extended to “all the major trading states of Europe and America.” In 1890, “after thirty-five years of Western free-trading… under privileged conditions,” Chinese merchants still controlled nearly two-thirds of Bangkok’s trade, more than double that engrossed by the British. In Siam, as in China and Japan, the domestic business of European and American firms was invariably managed by “a Chinese merchant of some wealth, Western training, and standing in the Chinese community.” Chinese dominance extended even to the rice trade, “the biggest prize of all in Siam,” where “the pioneering Western mills were abandoned or passed into Chinese hands.”7 Chinese economic capabilities originated in Chinese village life. The Ming-Qing era witnessed a rapid expansion of commerce. Rural households attended periodic markets to buy, sell, or barter farm produce, labor services, animals, fodder, handicraft materials and products, household necessities, and loans, sometimes on a daily basis.8 The reliance of these markets on a complex monetary system that used copper cash for small purchases and silver coin, ingots, and bullion to manage tax payments and wholesale transactions injected the variable exchange rate between copper and silver into the economic lives of all Chinese. Rural markets were highly competitive: poor but energetic individuals could enter the commercial world as middlemen, earning commissions facilitating local transactions. Written documents occupied an important position in economic life. Arrangements for short- and long-term labor services, for renting, mortgaging or transferring land, for selling, storing, or conveying merchandise, and for marriage, adoption, apprenticeship, and division of family property routinely involved written contracts. The operation of kinship groups, mercantile and native-place associations, crop-watching societies and other private organizations revolved around complex written arrangements. Both men and women (who often brought their own funds into their husbands’ households) participated in village-level economic life. Documents also permeated interactions with the state. These circumstances placed a premium on literacy and numeracy, even for humble villagers. In late Qing, literacy extended to 30-45 percent of males and 2-10 percent of females—high figures when compared with pre-industrial Europe.9 Age-heaping, the tendency of illiterates to give their age in round numbers (so that more people identify themselves as being 20 years old than 19 or 21), is prominent in many low-income nations, but notably absent in nineteenth-century China.10 While suffering the low incomes, short life expectancy, and high infant mortality that afflict poor people everywhere, Chinese villagers attained disproportionate levels of entrepreneurial capability, organizational skill and commercial sophistication that often enabled them to out-compete natives of other Asian countries and even Europeans, not just in Shanghai and Bangkok, but across wide swathes of Asia. Colonial authorities in Batavia, Manila, and Singapore found the services of Chinese to be “indispensable.”11 These unusual features did not extend uniformly across China’s landscape, but concentrated in regions with the most extensive development of trade. These included the lower reaches of the Yangzi River, which formed the hub of domestic commerce, as well as the southern coastal provinces of Fujian and Guangdong, the source of large-scale overseas migration.12 These regional differences persist. Chinese executives report wide regional variation in manufacturing capability: “Managers at a leading maker of auto parts were only able to produce products that were less ‘quality demanding’ in their inland

6 G. W. Skinner, Chinese Society in Thailand (Ithaca: Cornell U. Press, 1957), pp. 97, 92, 93. 95. 7 Ibid. 102, 105. 8 G. W. Skinner, Marketing and Social Structure in Rural China (Ann Arbor: AAS, 1965). 9 Evelyn S. Rawski, Education and Popular Literacy in Ch’ing China, (Ann Arbor: U. of Michigan Press, 1979), chap. 1. 10 Joerg Baten et al, “Evolution of living standards and human capital in China in the 18–20th centuries.” Explorations in Economic History, forthcoming. 11 Sarasin Viraphol, Tribute and Profit: Sino-Siamese Trade, 1652-1853 (Cambridge: Harvard Council, 1977), p. 170. 12 For an architectural example, see http://www.nytimes.com/2009/12/04/world/asia/04taishan.html?emc=eta1

facilities. … [where] efforts to raise standards encounter broader cultural obstacles.”13 Even though massive infrastructure growth has reduced economic distances between inland cities and China’s ports, foreign investments cluster along the coast. Speaking in 2008, Commerce Minister Chen Deming emphasized the regional imbalance in commercial expertise, promising to “help set up centers to train business brains in East China for the central region.”14 During the nineteenth century, growing pressure by expanding European powers, later joined by the United States and Japan, led to a procession of “unequal treaties” which compelled China to cede territory and authority to avoid open warfare with the militarily superior imperial powers. While the resulting erosion of Chinese sovereignty created a lasting sense of grievance, the economic consequences of the “unequal treaties” were broadly beneficial. The free trade regime imposed under the 1842 Treaty of Nanking lasted nearly a century. Even though free trade imposed costs associated with unrestricted imports of opium, 15 Peter Lindert conjectures that “common folk were among the greatest gainers” from China’s growing exports of labor-intensive commodities—tea and silk in the nineteenth century, cotton textiles in the twentieth.16 Treaty provisions allowing foreigners to reside, trade, and, after 1895, to operate factories in an expanding roster of open ports accelerated the inflow of new technologies and ideas—among them telegraph, steamships, railways, new-style banks, company law, and advertising—that contributed to long-term economic modernization. Despite these supportive circumstances, sustained growth was slow to arrive. To be sure, the Taiping Rebellion of 1851–1864 inflicted massive damage, turning some prosperous regions into wastelands. But what of the 40-plus years between the suppression of the Taipings and the Qing collapse of 1911? One might expect that the combination of political stability, open and competitive trade, and a government moderately supportive of reform would have kindled substantial economic advance, especially with the extra momentum that recovery from war often provides. But available materials do not encourage this line of thinking. Nor do we have a clear idea of what structures or forces might have limited economic advance during the final Qing decades. The list of possible constraining factors includes the difficulty of building momentum in a large economy and the state’s tiny fiscal resources—each quite different in Japan, as well as China’s lack of readily accessible coal deposits.17 Despite domestic political instability and mounting Japanese incursions, the decades between China’s 1911 revolution and the outbreak of the Sino-Japanese war in 1937 finally delivered a marked economic upswing. Manufacturing grew steeply, albeit from a tiny base, along with components of the urban economy. These gains spilled into the much larger farm sector, as urban factory growth raised the demand for cotton and wheat, expansion of transport networks enlarged markets for rural products, and banks experimented with retail farm lending. Rising wages in textiles and coal mining, occupations that attracted unskilled rural migrants, and in agriculture itself attest to modest but definite increases in agricultural productivity and incomes, changes that affected the majority of China’s vast labor force.18 The outbreak of war in 1937, followed by a steeply rising inflationary spiral, imposed a double blow that reversed a quartercentury of economic advance, but not before new institutions had demonstrated their strength by cushioning China’s economy against the worst consequences of the global depression that began in 1929. Although large outflows of silver, the foundation of China’s pre-war currency system, threatened to tip China’s economy into a deflationary downdraft, China’s private bankers, operating without the benefit of official regulation or support, persuaded their fellow citizens to increase their reliance on private banknotes and deposits with the result that the money stock actually increased during the 1930s. This contributed to the surprising resiliency of China’s economy, and limited the depth and duration of the decline in prices, wages, investment, and output, all of which were far smaller than in many other nations.19 PEOPLE’S REPUBLIC OF CHINA ESTABLISHED Following Japan’s surrender and the conclusion of the ensuing civil war, leaders of the newly established People’s Republic of China faced a poisonous cocktail of runaway inflation, budget deficits, and widespread reluctance to hold currency or bank deposits. These difficulties were quickly resolved despite the added complication of China’s October 1950 entry into the Korean War. 13 Loren Brandt and Thomas G. Rawski eds., China’s Great Economic Transformation (Cambridge: Cambridge U. Press, 2008), p. 625 14 Gong Zhengzheng, “Central China Urged to Up Ante.” China Daily, 28 April 2008, p. 2. 15 Carl Trocki warns that “Much of the literature [on opium] is emotional, uninformed, highly prejudiced and intended to persuade rather than to inform” (Opium, Empire and the Global Political Economy (London: Routledge, 1999), p. 177). 16 “International Economics,” in Thomas G. Rawski et al, Economics and the Historian (Berkeley: U. of California Press, 1996), p. 229. 17 On coal, see Kenneth Pomeranz, The Great Divergence (Cambridge: Cambridge U. Press, 2000). 18 Thomas G. Rawski, Economic Growth in Prewar China (Berkeley: U. of California Press, 1989), chap. 6. 19 Ibid, chap. 3.

Buoyed by this initial success, China’s new leaders redirected their economic efforts toward growth. Their actions reflected the widespread mistrust of private enterprise and international markets common among low-income nations at the time. China’s alliance with the Soviet Union and confrontation with the U.S. strengthened the tilt toward planning, public enterprise, and isolation from global markets. The design of China’s economic plans followed Soviet example (as did India’s): concentrate resources in industries that can ramp up domestic capacity to expand industrial investment. As in the USSR, raising output of “machines to produce machines” became the key goal. This trajectory called for large-scale expansion of steel, electricity, mining, machine-building, and related industries, along with a supportive educational and research infrastructure. Planners viewed higher consumption as a cost—essential (in small quantities) to preserve incentives—rather than a policy objective. The effort to channel resources toward industrialization posed difficult choices for rural policy. Raising crop purchase prices could increase farm output and incomes, and provide new opportunities for resource transfer, but only if investment in consumer goods and farm equipment sufficed to maintain farmers’ incentives. Alternatively, collectivization might enlarge the available surplus farm products without shifting investment away from priority sectors. Farm policy vacillated between these poles until 1958, when Mao Zedong’s personal intervention shifted policy decisively toward collectivization. Farmland, tools, livestock, and rural labor were hastily absorbed into large “People’s Communes,” amid an intense campaign to raise output of grain and steel. This “Great Leap Forward” shattered administrative routines, wasted vast resources, undermined work incentives, and triggered a man-made famine that cost 30 million lives. To make matters worse, growing friction between Beijing and Moscow prompted the USSR to withdraw its technical support, crippling numerous industrial projects. Soon after economic planners managed to restore some semblance of normal economic functioning, Mao Zedong intervened again to promote another disruptive political movement, the “Cultural Revolution,” which began in 1966. Economic costs, although far smaller than during the “Great Leap,” were considerable, especially in education, where colleges and schools either shut down or abandoned normal standards for up to ten years. The death of Mao Zedong in 1976 was widely seen as a turning point for economic policy. People were not satisfied. Despite important economic achievements in growth, industrialization, technology (including nuclear weapons and space exploration), and human development (rising literacy, declining infant mortality, control of infectious diseases), China’s socialist system had fallen short in two key dimensions. The commune system failed to solve China’s food problem: as one local leader put it “hunger suddenly emerged without warning [in 1959] … For the next twenty years, the problem of hunger was part of our lives.”20 Furthermore, the country lagged far behind the economic achievements of neighbors whom most Chinese viewed as inferior: defeated Japan, colonial Hong Kong, Kuomintang-controlled Taiwan. REFORMS IN THE 1970s In reviewing the astonishing outcome of the reforms begun during the late 1970s, it is essential to recall their modest scope. The initial effort included three components. Impoverished localities began to experiment with household farming. Four new Special Economic Zones in the southern coastal provinces of Guangdong and Fujian exposed a sliver of China's isolated economy to international trade and investment. Government-owned urban firms could now retain a modest share of profits as an incentive to “enliven state assets”; revived markets for industrial inputs and products provided an outlet for retained profits. The agricultural initiatives met with instant success. Farmers raced to abandon collectives and reinstate household cultivation. Massive (and completely unexpected) increases in agricultural production raised farm incomes and improved the diets, energy and productivity of villagers everywhere. Rising farm output swelled exports and curtailed food imports, eliminating longstanding concerns over the availability of food and foreign exchange supplies. The farm boom disgorged new supplies of industrial materials (grain, cotton, sugar, fruit) and revealed vast surpluses of rural labor. Together with rising rural demand and increased access to urban markets and expertise, these changes fuelled an explosive boom in rural industry. Results of the trade initiatives also dwarfed expectations. Initial prospects seemed limited because the managers of China’s special zones, unlike their counterparts in Taiwan or the Philippines, lacked international experience. But the opening of trade zones coincided with growing pressure from higher wages and land prices on the cost of labor-intensive exports originating in Taiwan and Hong Kong. These exporters began to shift operations to the mainland, where the new combination of abundant low-cost labor with the knowledge, skills, and experience of Hong Kong and Taiwanese entrepreneurs generated an export boom that soon launched China from self-imposed isolation into the developing world's largest recipient of foreign investment. Looking back, it now seems evident that the unexpectedly large payoff to modest reforms in agriculture and trade owed much to the legacy of human capital accumulated within China and among overseas Chinese during the decades and centuries prior

20 Shu-min Huang, The Spiral Road (Boulder: Westview Press, 1989), p. 61.

to 1949. While “agricultural projects in East Africa … suffer from a shortage of well-trained African accountants … [who can manipulate] a simple cost-accounting system,”21 Chinese villagers quickly mastered the complex record-keeping demands of the commune system. Once reform began, the supply of managers and accountants easily accommodated massive expansion of township and village enterprises, which mushroomed to encompass 18.5 million firms with 92.6 million workers and over $10 billion worth of goods procured for export in 1990.22 Urban reform turned out to be far more complex. Vast swathes of Chinese manufacturing were creatures of the plan that lacked any market heritage. Furthermore, urban reform cut to the core of Chinese socialism, which, despite its rural background, had long focused its attention on the development of cities and the welfare of urbanites. Chinese leaders entered the reform process with vague notions of improved economic performance rather than clear objectives. At the same time, entrenched party and bureaucratic interests eliminated any possibility of sweeping reform. This turned the transformation of China's urban, industrial economy into a lengthy process that gave birth to the distinctive features of Chinese gradual reform. With “big bang” reforms of the sort attempted in Russia and Eastern Europe neither feasible nor, in the view of Chinese leaders, desirable, urban reform evolved as a series of policy experiments and initiatives, decentralized responses, and official reactions. At the outset, Deng Xiaoping and his reform-minded colleagues sought to improve outcomes rather than to pursue a clear vision for China's post-reform economy. Because Chinese planning was relatively decentralized, with provincial and local leaders enjoying greater authority and control than in the Soviet Union, central reform initiatives typically focused on enabling measures that broadened the opportunities and choices available to enterprises and lower-level governments. Instead of eliminating price controls, China gradually raised the share of sales transacted at market prices. Rather than privatize, a growing range of firms began to issue shares. Production planning did not vanish, but its span of control gradually diminished. This open-ended approach invites decentralized reactions that the center cannot fully anticipate or control. Governments at all levels become participants; sometimes even followers, as well as leaders of reform. Reform unfolds as a process replete with interactions among governments, enterprises, workers, and consumers rather than as a sequence of events in which the state imposes decisions on businesses and individuals. UNFORESEEN OUTCOMES The heterogeneous nature of China's pre-reform system meant that the effect of Beijing’s reform initiatives was far from uniform. The uneven impact of enabling reforms destabilized outcomes and intensified competition. Competition reduces profits. In socialist China, government agencies and state-owned enterprises, which controlled the bulk of capital assets, suffered mightily. The steep decline in government's share of national product during the 1980s illustrates the importance of unforeseen outcomes. Some enterprises reacted to financial pressures by developing new products, trimming costs, and raising productivity. Others bombarded their official sponsors with claims of “unfair competition” and pleas for financial assistance. Supervisory agencies, short of funds because of the slow growth in their revenues from profits (or taxes on profits), often found it easier to respond with further reform initiatives than with cash. In this way, Chinese reform created a “virtuous cycle” that enabled myriad small reforms to cumulate into substantial institutional change. Reform expanded competition and created financial pressures that spurred some participants toward innovation, resulting in further intensification of competition. Even when financial pressures resulted in lobbying rather than innovation, the typical response involved further partial reform, which unleashed fresh rounds of competition. This system produced an odd structure in which the balance between plan and market varied widely for different official agencies, regions, enterprises, and households. Variation allowed participants to weigh their own prospects under each system. As Susan Shirk has shown, the result was a gradual shift of opinion toward preference for market outcomes that culminated in the China’s Communist Party’s 1993 decision to pursue a “socialist market economy with Chinese characteristics.” 23 Comparison of circumstances in 1993 with the recent past shows that subsequent development has followed the track established by the 1993 decision, under which government was to undertake macroeconomic management, regulation of health, environment etc., and setting strategic priorities for the economy, leaving other decisions to the market. The shift from plan to market continues: the share of industrial output originating in state-owned or collective firms that are subject to strong official controls plunged from 81.7 to 11.0 percent between 1993 and 2008. The move from public to private ownership has accelerated, with the share of domestic private firms and firms with offshore investment in industrial production leaping from 21 Uma J. Lele, The design of rural development: lessons from Africa (Baltimore: Johns Hopkins U. Press, 1975), pp. 127, 131. 22 China Statistical Yearbook 1991- abbreviated below as CSY (Beijing: China Statistics Press, 1991), pp. 377, 628; David Zweig, Internationalizing China (Ithaca: Cornell U. Press, 2002), p. 121. 23 Susan Shirk, The Political Logic of Economic Reform in China (Berkeley: U. of California Press, 1993).

18.5 to 56.4 percent during the same period.24 Continued movement from isolation toward global involvement is also clear: between 1993 and 2008, annual two-way trade advanced from $195.7 billion to $2.56 trillion, China’s trade ratio (combined exports and imports as a percentage of GDP) rose from 28 to around 60 percent, incoming foreign direct investment jumped from $28 to $92 billion, and China emerged as a substantial source of outbound direct investment, with annual flows rising from $4.4 billion in 1993 to $52.1 billion in 2008.25 These important structural changes occurred amid a further acceleration of growth that has pushed the leading edge of urban prosperity into new territory, with affluent households now able to afford luxury housing, private automobiles, international travel, and overseas schooling for their children. Strong momentum has enabled China’s economy to power through sharp setbacks from the international financial crises of 1998 and 2008/09 as well as the 2003 SARS epidemic.26 REFORM SUCCESS One vital ingredient in China’s long-term reform success came from domestic policies that pushed aside major obstacles to improved economic performance by improving incentives and allowing increased entry, competition, mobility, and price flexibility. Although these reforms remain incomplete—private businesses, for example, still confront formidable legal, administrative, and institutional barriers—they created sufficient momentum to overcome the friction and drag linked to a host of less critical inefficiencies associated with price distortions, imperfect markets, and institutional shortcomings (for example in banking, property rights, and corporate governance)—all of which retarded growth and increased its cost without endangering the ongoing boom. The combination of Chinese land and labor with the capital and expertise of Taiwan and Hong Kong industrialists provided a particularly important boost to exports and employment during the first decade of reform. China’s coastal regions used the experience and confidence gained from initial cooperation with Overseas Chinese entrepreneurs to attract rising investment flows from multi-national corporations. Foreign investment has powered China’s revival as a great trading nation and contributed to the expansion of Chinese manufacturing capability (for example, in automobiles). CHINA’S FUTURE What of the future? China’s economic prospects appear strong. Rapid diffusion of education will further improve its already impressive pool of human resources. Entrepreneurship flourishes despite remaining barriers to the expansion of private business. With public interest in socialist ideology notably absent, China’s political elites understand that continued economic growth is essential to maintaining their own power; their focus on development is therefore intense. Manufacturing, the largest and strongest sector of China’s economy, seems poised for further upgrading, which will benefit from enlarged flows of college graduates, domestic R&D activity, and new ideas from China’s growing portfolio of international investments. China’s efforts to harvest these promising economic opportunities must confront formidable obstacles. Although international media and NGOs tend to exaggerate the dangers arising from environmental and public health hazards as well as tensions linked to ethnic and economic inequalities, these issues pose major challenges, as do corruption and the intertwined problems of unemployment and (especially rural) education. The biggest dangers, however, lie elsewhere. On the domestic side, a largely unreformed investment mechanism allows government decisionmakers to channel funds from state-owned banks into state-controlled investment projects. This relic of Soviet-style planning holds back the growth of output, productivity, and (especially) employment, extends a long-standing pattern of grotesque seasonal fluctuations, creates mountains of bad loans that increase the risk of financial instability, and truncates expansion prospects for private businesses (which find themselves crowded out of financial markets). On the international side, global market access, which has made China the greatest beneficiary of globalization, remains essential to China’s future prospects. The recent economic crisis shows how quickly disruption of overseas export sales can undercut domestic economic activity (best measured at the moment by electricity use) and employment (Chinese economists reckon that the 2008 crisis caused over 40 million layoffs). Imports of energy, materials, equipment, components, and technology are equally essential. Chinese plans to grapple with a wide range of pressing economic issues routinely anticipate unfettered access to world markets for funds, expertise, and ideas as well as commodities.

24 CSY 1994, p. 373; 2009, Table 13.1. 25 Data from CSY, 1994 and 2009; Penn World Tables; UNCTAD website. 26 Official data conceal the impact of these reversals on overall output. For example, official reports for the fourth quarter of 2008 show electricity output falling by 12.1 percent compared to year-earlier results, but claim that GDP expanded by 6.8 percent during the same period.

China’s continuing growth spurt, now in its fourth decade, is a major event in world history that has delivered massive benefits to its citizens, and also to its trade and business partners, including the United States. Chinese economic expansion also creates conflict—in the economic sphere alone, China has become involved in disputes over cross-national shifts in production and employment, corporate takeovers, trade imbalances and protection, environmental hazards, currency valuation, intellectual property, internet censorship, labor standards, subsidies, and many other issues. Beijing’s intense focus on building a prosperous Chinese future, along with China’s large and growing reliance on global markets to promote its economic objectives, tilts China’s international behavior toward cooperation rather than conflict. Despite the inevitable friction that accompanies the China’s expanding economic, political, military, and technological strength, this orientation, which is evident in Beijing’s approach to issues surrounding trade, environment, property rights, and the Korean peninsula, creates an opportunity for the international community to adjust to China’s expanding power and influence through mutual agreement rather than armed struggle.

FPRI, 1528 Walnut Street, Suite 610, Philadelphia, PA 19102-3684 For information, contact Alan Luxenberg at 215-732-3774, ext. 105 or email fpri@fpri.org or visit us at www.fpri.org.

Similar Documents

Premium Essay

China and Rise of Disposable Income

..."The rise in disposable income and the change in government policy has created an environment for global companies to enter the Chinese market." we will focus on luxury products Question - How has the income levels changed in the Chinese economy and what factors contribute to the change in the income levels. Also what factors (from an income standpoint) should western firms keep in mind when deciding to serve the Chinese market. As per the Mckinsey Global Institute (MGI), in 1985, 99 percent of the household lived on income less than 25,00 reminbi, or $3019 per year. An estimated 116 million people in china were living less than $1 a day, by 2004 this number has been by 53 percent to just under 54 million. This has been a historical achievement in one generation. Chinas pro-market reforms and integration into the global economy has enabled China to achieve such success. As real average disposable income for households has grown 3.2 times over the past 20 years to 25,348 renminbi today, china has developed a structure of distinct income levels and the rise of the middle class. Even though there remains a huge income gap between the rural and urban population. The disposable income for people living in the rural and urban population is increasing. The diagrams on the right depict the rise in their disposal income level in urban and rural households. Due to the rapid pace of urbanization in China, the annual disposable income per capita for urban households is climbing...

Words: 1896 - Pages: 8

Premium Essay

Race to the Top

...trying to resolve. That’s why understanding goals and barriers of this Far East country is especially difficult, not only for us, but for the most of businessmen around the world. First part of our research will be focused exactly to these issues. So, let’s get to the point. Globally, what does China want and what problems is it facing? We will start with the presumed assumption that China wants to beat USA and become worlds leading economy. But first, we must emphasize that Chinese government never actually said these words. The biggest reason for that is the fact that China obviously doesn’t want to accept responsibilities which they will automatically undertake from USA if they become world’s leading economy. These responsibilities include the role of world policeman and the role of being the trigger for major changes in the world. There is also the fact that some other countries will automatically try to follow China’s economic politics, so they will be in a risk to lose their comparative advantage. We can backup this with government statements: “We don’t want that other countries follow our example and our politics in any way”. (CCTV Dialogue) When you look at China’s rise one thing couldn’t be neglected. The...

Words: 728 - Pages: 3

Free Essay

China

...China’s Rise is Inevitable China’s inevitable rise ranks among the most important world developments of the last 100 years. Since America is still trapped in its sixth year of economic hardship, and the Chinese economy is set to surpass the U.S.’s before the end of this decade, China looms very large on the horizon. A U.S. intelligence report stated that China's economy is likely to surpass the U.S. in less than two decades while Asia will overtake North America and Europe combined in global power by 2030. Modern China’s rise to world economic power, like its predecessor from 1100 to 1800, is based on its enormous productive capacity. China’s rush to economic development is beautifully depicted in the documentary, “Last Train Home.” Trade and investment was governed by a policy of strict noninterference in the internal relations of its trading partners. Unlike the U.S., China did not initiate brutal wars for oil; instead it signed lucrative contracts. Also, China does not fight wars in the interest of overseas Chinese, as the U.S. has done in the Middle East for Israel. China’s sustained growth in its manufacturing sector was a result of highly concentrated public investments, high profits, technological innovations, and a protected domestic market. While foreign capital profited, it was always within the framework of the Chinese state’s priorities and regulations. The regime’s dynamic export strategy led to huge trade surpluses, which eventually made China one of the world’s...

Words: 1357 - Pages: 6

Free Essay

Brics

...The BRICS economic success formula will continue to be imitated by aspiring economies in the developing world and particularly in Africa! The term ‘The BRICS’ was first quoted in Goldman Sachs report which was published in 2001, this term is an acronym for the emerging developing countries which are Brazil, Russia, India, China and South Africa (Wilson & Purushothaman, 2003, p. 2). In the last decade, these countries have been successful in the global economy and many developing countries across the world, predominately Africa are trying to emulate this success. The essay will show a brief overview of how successful the BRICS have become, once these reasons are established, the essay will focus on the core part of the question which is providing evidence showing how the developing world but in particular Africa are imitating the success of the BRICS. Finally the essay will finish with a conclusion which will summarise the main points which have been explained and discussed throughout the essay. The BRICS have been successful in the last decade, but forecasters believe that by 2050, the BRICs could become a very important source of new global spending and by the year 2032 Japan’s economy would become smaller that India’s and USA’s economy could shrink below China’s economy by the year 2041. If the BRICS combined their economies together, it would be larger than the G6 (Japan, United Kingdom, Germany, France, Italy, United States) by the 2039 (Wilson & Purushothaman, 2003, p....

Words: 1914 - Pages: 8

Premium Essay

Chinese Rmb

...RENMINBI: “OUR CURRENCY, YOUR PROBLEM?” Section I The debate on whether China should immediately appreciate RMB tends to be intensive recently. US and EU claimed that the undervalued RMB manipulated by Chinese government giving rise to their trade deficit. On the other hand, China responded that trade deficits in these countries cannot be a result merely from undervalued RMB and as China has the right to choose its exchange rate policy as a sovereign country. In our analysis, undervalued RMB is not the crucial factor leading to US and EU trade deficit. Besides, it is possible that many adverse effects such as bubble burst and social turmoil occur in China. Finally, even if the undervalued RMB is the reason and RMB is appreciated therefore, other developing Asian countries will take the place of China through their undervalued currency, which would not benefit either the US nor China. Section II Our statement is based on the external and internal considerations for economies and politics of China and its major trade partners. * RMB appreciation will not necessarily reduce the other countries’ trade deficits. * Weak Link between Currency Values and Trade Flows: From 2001 to 2004, the RMB-US$ exchange rate was consistent, while the U.S. exports to China were increasing (See Figure 1). From July 2005 to July 2008, the RMB appreciated by 21 percent against the dollar while the U.S. trade deficit with China increased from $202 to $268 billion. * Nature of foreign trade...

Words: 760 - Pages: 4

Premium Essay

International Relation Theories

...For example a key difference would be that realists make the basic assumption that the international system is anarchic where as liberals believe in institutions such as the U.N. can intervene effectively on state issues, there are also conflicting views between the three on issues such as war, the economy and major corporations. Within realism there is this sense of belief of “self-interest” this is a theme seen throughout Mearshermiers article Australians should fear the rise of China. Mearshamiers opening statement quotes “It is likely to lead to intense security competition with US – and considerable potential for war”. In a brief summary Mearshermier talks about how with this augmentation of Chinas power, surrounding countries such as the United States of America and Australia should be prepared to take action and prepare for war. This is a key ideology of realism, as although they do not encourage war in anyway they believe that war will always exist and it is necessary for states to prepare themselves for it especially if being threatened. This is why Mershermiers article is nearly a textbook example of realist views on war. In comparison, on the issue of the rise of Chinas power an article written by Friends of the committee on National Legislation states the complete opposite of this but in fact that war is unnecessary especially between...

Words: 1197 - Pages: 5

Premium Essay

Impact of China’s Expansion in Every Sphere on United States of Amerca

...power is all that matters to selfish and domination oriented states. In a very similar way, China, which has been making success by leaps and bounds, is in time aiming to gain the position of super power, the position which in the present day is being enjoyed and exercised by the United States of America. With around 1.3billion population; estimating for one-fifth of the world’s entire population, with world’s largest armed forces, China, while contributing about 13percent to the world economy, is at present the fastest developing country across the sphere, with raw potentials to becoming a super power down the line. (China: The 21st Century Super Power, September, 2005) China, for past few decades, has been observed making substantial progress in almost every sphere, not only with an aim to improve its international front, but also to maximize its share of international power and gain a position that is desired by a few of the known competing great powers. China has been implementing and devising a mix of very optimal agendas and policies to influence the world and counter the western capitalist approach. The fast paced and significant rise of China since the very start of its independence in 1949 has generated a complex competition and a wave of turmoil across the globe to strive for the most desired and powerful status. Thriving in every range and region to a great extent; China is generating potential in the...

Words: 3274 - Pages: 14

Premium Essay

The Rise of China and Its Affect

...ELECTRONIC ASSIGNMENT COVERSHEET | | Student Number | 31963763 | Surname | Dendup | Given name | Tenzin | Email | Dendup.tenzin3@gmail.com | | | Unit Code | POL161 | Unit name | Asia Pacific in the Global System | Enrolment mode | Internal / external | Date | 13/05/2013 | Assignment number | 2 | Assignment name | Rise of China and Its Security Risk to Australia | Tutor | Kreisti Nillus | Student’s Declaration: * Except where indicated, the work I am submitting in this assignment is my own work and has not been submitted for assessment in another unit. * This submission complies with Murdoch University's academic integrity commitments. I am aware that information about plagiarism and associated penalties can be found at http://www.murdoch.edu.au/teach/plagiarism/. If I have any doubts or queries about this, I am further aware that I can contact my Unit Coordinator prior to submitting the assignment. * I acknowledge that the assessor of this assignment may, for the purpose of assessing this assignment: * reproduce this assignment and provide a copy to another academic staff member; and/or * submit a copy of this assignment to a plagiarism-checking service. This web-based service may retain a copy of this work for the sole purpose of subsequent plagiarism checking, but has a legal agreement with the University that it will not share or reproduce it in any form. * I have retained a copy of this assignment. * I will...

Words: 2143 - Pages: 9

Premium Essay

Mgmt 1p93

...count: 396 words) China’s Impact on Global Economy Batson and Dean (2007), Today, China represents not only a fast-growing source of revenue for many multinational companies, but also a rising source of profit. The Open Door Policy in 1978 brought China a massive increase in interaction with the global economy and a tremendous economic growth rate . An analysis of recent statistics illustrates that China will overtake U.S. economy and become the world’s biggest economy structure by 2030. What makes China has such huge impact to the world economy? The structural transformation is most likely the answer due to the rapid population growth, technological development and government policies. China’s economy transforms from primary sector (self subsistence) to tertiary sector (provides goods and services to worldwide customers). With a higher quality of goods and services which allows market expansion, this enhances the competitiveness of market position among other developing and developed countries such as India and USA respectively. Similarly, the secondary sector and the tertiary sector also play a very important role in export. Although it had to wait 15 years to be admitted to the World Trade Organization, it is now the world’s third largest exporter (Hutzler, 2005). Entering the WTO allows more and more free trades occur in China, it creates a lot of job opportunities for local workers in China. However at the same time, it causes a growing...

Words: 526 - Pages: 3

Premium Essay

1111

...Title: Principles of Economics Essay Title: A part of China’s economy Contents Introduction of China economics…………………………………………..…..….4 Summary of article…………………………………………………………………...….4 Aggregate supply (AS) models……………………………………………………..…5 Aggregate demand (AD) models………………………………………………..….....6 Government policies to overcome above problems and effectiveness…………7 Conclusion…………………………………………………………………………………..8 Reference list…………………………………………………………………………………9 Introduction of China economics China’s economy is rapidly huge and expanding in these years. It is the fourth largest country in area after Russia, Canada and USA has experienced multifarious changes in its economic system which has seen it become the second largest economy in the world after USA if measured on the Purchasing Power Parity (PPP) scale. However, China still considered as an emerging economy as per capita incomes fall in the lower-middle level, China is making its presence felt in the global stage by taking big strides in opening up its economy to international trade. There are many economic problems faced by China during the years. And the inflation has become a serious challenge for the developing economy; the surplus of population and the rising unemployment rate and price. According to statistics, more than 250 million migrant workers and their dependents had removed to urban areas to find work. Hence, as China’s economy slows down due to falling external and internal demand, a number...

Words: 2038 - Pages: 9

Premium Essay

China Report

...The rise of China – a new leader for a new world? The rise of China – a new leader for a new world? * Table of Contents 1 About China (GEOGRAPHY, facts) 1 2 Current Situation 3 3 Political Situation 6 4 China and US 7 5 References 9 The rise of China – a new leader for a new world? In the world, China is the third largest country which is situated just behind Canada and Russia. But the population of china is one-fifth of world's population approximately 1.2 billion people live in China. About China (GEOGRAPHY, facts) China is quite diverse land containing mountains, fertile river basins and deserts. Most of the western China is mountains with Tian, Pamir ranges and Himalaya. The western China also covered with the large desert. However, the Central China contains mountainous regions. The Rivers similarly play a main role in the China, both for irrigation and for the transportation. Most of the southern rice fields and northern wheat fields are irrigated from the rivers. Some interesting Facts about China: 1) The Great Wall is famous in whole world. This wall was built over 2,500 years before to protect against the invaders from north. The Troops would patrol wall to protect China against the attack. Just the once over the 6,000 miles long, this wall is currently around 3,750 miles long. 2) In china we can see major industries. For numerous years, China is working for the economic development of the country. But, most of the China people...

Words: 1270 - Pages: 6

Free Essay

Analyzing Japanese Economy

...Data 02/16/2014 The mechanism behind Japanese foreign trade VS China & South Korea. Background information: After World War 2 japan recovered very rapidly and had economic boom. Japans economic growth was very high. Here is a table showing Japan’s economic growth. Behind this scenario were couple essential factors: JETRO- japans external trade organization, MITI- ministry of international trade and Industry, after renamed to METI- Ministry of Economy Trade and Industry, Sogo-Shosho independent trading houses, Japan bank for international corporation, Institute of developing economies under METI and Ministry of Finance. MITI: Combining to two different sectors under single ministry already emphasizes how long oriented and strategic meaning it carries. The main engine of Japanese economy was industry that includes- machinery, high-tech, etc… And coming to trade it is also main accumulator of Japans GPD. Japans economy relies on export mostly. Japan in early 80-90 had huge gap of budget surplus. It exported much more than it imported and that imbalance between export and imports directly influenced US economy. Japan had and still has very exclusive channel distribution. Foreign companies cannot directly sell to japan. There are many informal barriers for foreign companies. More than that Japanese companies used predatory pricing strategy wherever they go. They set aggressive pricing strategy against competitors that couldn’t survive in market. In addition to these...

Words: 1090 - Pages: 5

Premium Essay

China

...A study on China and the World Economy of Today: A look at the impact of China’s Global economic integration and Prices. Chapter one: Introduction 1.1 Introduction Since 1978, the People’s Republic of China (PRC) government has stood out in restructuring its economy from a Soviet-style centrally planned economy towards a market-oriented economy nonetheless within the political framework, provided by the Communist Party of China. This system has been called "Socialism with Chinese characteristics" and is one type of mixed economy. “These reforms started since 1978 has helped lift millions of people out of poverty, bringing the poverty rate down from 53% of population in 1981 to 8% by 2001” (OECD 2002a). Over the preceding decades, the existence of China in the world’s economy is full-fledged. Laterally, China is properly or erroneously seen to have a massive impact on the world’s economy. In today’s trade market, China is at present generally regarded to be the world’s workspace, there-by relocating some traditional exporters of labor-intensive goods, irrespective of the fact that its economy is constantly woven into the fabric of progressive split chain of making (Menzie D.2009). The emergence of China as an industrial and export livewire is undoubtedly one of the most significant forces reshaping the present-day world economy. Barry E and Hui T in 2005 stated that “A now standard way of conveying this point is to observe that the increase in employment...

Words: 7044 - Pages: 29

Premium Essay

Globalisation and China

...Romana 2014 For an economy other than Australia analyze the influence of globalisation on that economic development and standard of living. This document is about how china has been transformed by globalization. The impact of globalization as well. Globalisation is breakdown of manmade and natural barriers. It encourages integration and interdependence through the movement of labour, investment, finance, transnational corporation and trade. The emergence of countries is leading to global market place or single world market. Globalisation is ongoing since 1980s.This is resulting in one global market. Globalisation helps firms grow as investments are quickly managed. This is due to improvement in telecommunication between nations. This has allowed investors to invest overseas. It also caused an increase in international investment, which helped spread new ideas. Financial flow is a flow of money around the world it is increasing rapidly because of financial deregulation. Finance and technology move freely between nations while free movement of labour is stretched way off. The last few decades have been centred on removal of all trade barriers. The goal is not free trade but it is freer trade. Through the reduction in barriers it is improved in transportation system. The integration between nations has caused to problems such the GFC, Asian crisis and Euro crisis. Over the past labour markets have been increasingly integrated. The free movement of labour is important...

Words: 1831 - Pages: 8

Premium Essay

Business Development in Emerging Economies

...Masmoum Business Development in Emerging Economies 11 April 2014 A) In your opinion – What is the future of Emerging Economies? It seems almost impossible to deny that the emerging economies have a big future. In the last two decades, many developing countries have experienced economic growth and have come over many challenges such as social, political and technological. The economic growth is changing the outlook of those emerging markets. The future of developing countries is very promising and likely to bring large-scale developments and improvements for those emerging economies. Emerging economies are growing at a high rate, which is giving them an economic importance as their share of the world total GDP is still growing (IMF, 2014). However, many factors are challenging the rapid growth of emerging markets. In fact, in some countries such as Turkey and Brazil, it’s proving difficult to achieve a sustainable growth due to political risks. In terms of opportunities, emerging markets are the most promising because they are very rich in human resources (China and India) and natural resources (oil in Middle east and energy in Russia). The financial crisis in 2008-2009 has given the emerging markets more confidence to take the lead on the international level. In my opinion, the opportunities for emerging economies are big because they are experiencing a lot of social and political developments and on the long-term nations like China, India, Russia and Brazil will be centers...

Words: 2685 - Pages: 11