Impact of Globalization on Chinese Economy - Essay Example

?Impact of Globalization on Chinese Economy Introduction In topical times it is widely believed that globalization has benefited largely the economy of China in terms of increase in GDP growth rate. The local firms are expanding and becoming powerful while the nation is fast transforming into a strong economy via industrialization. This was a blessing in disguise as globalization might be considered as a two bladed sword which is most vicious in its initial phase and this isolation actually helped China to withstand the brunt of the same. While globalization helped in initiating an export led growth owing to the comparative advantage of China (gained from cheap labor), this has interfered with the industrialization by confining the Chinese businesses to the “low-end of the global value chain” and holding them back from improving their technologies (Yue, 2012). Before embarking upon the discussion a brief look into the background would be helpful. The famous Silk Road paved the way for the Chinese goods that mainly consisted, silk, printed paper, gun powder and compass. Not only those are goods but ground breaking inventions that held the Chinese head high at the global arena (Whitfield, 2004). The communist government was established in China in 1949 and China entered a prolonged phase of social and economic restructuring till 1977 (MacKerras & Yorke, 1991, p.81). This phase is characterized by meager economic exchange. (Bell, Khor & Khochar, 1993). The reflection of globalization is almost everywhere, however for simplicity only four variables are considered in this paper; agriculture, Industry, International trade and foreign direct investment. Again a coin has two faces so as globalization. The paper analyses the impact of globalization on the Chinese economy. It means that the all or none policy while judging the impact of globalization on Chinese economy would be faulty and far from the actual reality. Statistical overview The following table summarizes the growth rates of the agriculture, industry and trade pre and post reform period. This gives a brief picture regarding the impact of globalization in terms of figures on the Chinese economy: table 1: Annual growth rates of China's economy 1970-2010 (%)   pre-reform 1970-78 Reform period   1970-78 1979-84 1985-95 1996-00 2001-05 2006-10 GDP 4.9 8.8 9.7 8.2 9.9 11.1 Agriculture 2.7 7.1 4 3.4 4.3 4.5 Industry 6.8 8.2 12.8 9.6 11.4 11.9 Service n.a. 11.6 9.7 8.3 10.1 11.9 Foreign Trade 20.5 14.3 15.2 9.8 25.3 13.8 Import   12.7 13.4 9.5 24.9 14.2 Export   15.9 17.2 10.1 25.7 13.5 Population 1.8 1.4 1.37 0.91 0.63 0.5 Per capita GDP 3.1 7.4 8.3 7.2 9 10.6 (Huang, Wang and Qiu, 2012, p.5) The financial crisis of 2008 accounts for the lower annual growth rates of foreign trade, imports and exports for the period 2006-2010, but China managed to be consistent in terms of GDP rate and the domestic sectors. Agriculture The initial impact of globalization on Chinese agriculture might be summarized as the transformation from collectivization to individual household responsibility. Improved form of agricultural procedures was introduced with chemical fertilizers and pesticides, machineries were welcomed and that brought a huge growth in agricultural output and in rural income. However this success was short lived and by mid 80’s rural economic growth had achieved its ceiling. By the end of the decade and the beginning of the next one stagnation and a step ahead degeneration became the trademark of Chinese rural area. As agriculture is the prime profession of the rural people it also serves as a dummy for the agricultural sector that was subject to the same problem. To raise agricultural production, deforestation took place at an unprecedented level and impacted the environment. Soon the rural household felt the brunt of rising price of machinery, fertilizers and pesticides and resorted to their initial way of farming that gave rise to pseudo unemployment. Apart from that, globalization exposed the farmers to market price fluctuations. Along with liberalization of domestic markets, liberalization of trade policy was also followed after 1990s for food grains like rice and wheat. The taxes and subsidies of these two crops were also phased out while NRAs for rice increased at steady rate and the same for wheat came down. From 2001 the NRAs for both the crops became nil(Huang et al, n.d.). Owing to the huge population, per head availability of land was limited and that gave birth to another typical environmental problem. Pesticides from a land got spread into other and vice versa, giving rise to over use of pesticide that is under any circumstances unhygienic and harmful to the mass. Under collectivization women were of equal share of labor and their contribution was highly acknowledged but as that system dissolved under globalization they lost their say and hurled into the four walls of the house. As a last resort to such shameful outcome many woman from rural areas migrated to urban areas to work as nanny or other household works in urban families. Degradation of arable land and contamination of major river system are few others to get mentioned as the consequence of globalization. Though under globalization agriculture became more and more industry oriented; government expenditure on agriculture declined at a sharp rate. However, in recent time government has resorted to a tax cut and rise in investment specially directed towards the rural sector and that expected to have a positive impact on the agriculture (Wen, 2013). Industries Globalization made the Chinese Industrial sector witness growing power of local officials and managers of a plant in decision making. This has led to much time saving and proper judgment taking. Being local in nature they are much more aware of the actual problem and this has also helped to overcome the unnecessary approval scenario that resulted in less efficiency. Many Chinese firms has grown to giant proportion and testing their might against other Multi National Corporations, operating in China. However, time and again question has risen on the technology theft of the Chinese firms. Furthermore the growth of the Chinese firms are mostly export driven and little adherence has been paid to build indigenous technology development or research and development (Zhang, 2006). In the long run this cannot be a sustainable model and sooner or later the need of channelizing foreign fund into development of own capability in terms of research and development and fostering new technology would be felt. It has been opined that at this rate China’s dependence on external technology would reach an unprecedented level by 2020. It should not be forgotten as well that behind the bullish performance of a few Chinese firm a large number of smaller firms are there, which are nothing but small and medium scale enterprises even amidst this much celebrated globalization success of China (Yue, 2012). Foreign Trade Over the last decade, the nation’s GDP increased by 4.6 trillion USD (from 2001-2010). The GDP of China formed 9.3 percent of the world GDP during the same span. The average annual growth rate of imports from 2000 to 2009 was 15 percent and that of exports was 17 percent. When the financial crisis broke out in 2008, the Chinese government undertook some policies in order to push the economy and the success of this measure was reflected in the fact that when the global goods imports fell by 12.8 percent, that of China increased by 2.9 percent and hence it is the only nation to maintain growth among all the countries. This urged the demand side of the global economy and raised confidence. China’s measures and strategy kept in line with globalization. This helped in playing a constructive part in world’s growth and recovery. Foreign trade boost in China also helped in improving the national welfare of the country which amalgamated into the global labor section and turned into a major producer and exporter of industrial goods banking upon the cost saving labor availability and productivity. Trade has provided a wide market for China’s trading partners. Their fast growing imports plays a key role in global economic growth and creates a big market for the partners to increase their exports. However there are few negative sides to this too (Information Office of the State Council, 2011). Before the liberalization in 1979, China followed a close door policy and isolation with self sufficiency. The nation was marked for bicycles, communist tradition and Mao suits (blue color uniform for all Chinese). Now it is a status symbol for communist leaders to use Mercedes and BMWs. These cars were smuggled into China at large scale in the nineties. Corruption is rapidly spreading including thefts and robbery. Yet the nation is safer compared to many others (Sudhaman, 2009, p.94). Overall, China’s reform and participation in the process of globalization have led the nation to become a rapid growing emerging economy. Foreign Direct Investments From the time of liberalization and reform, over the last two decades, the city of Shanghai has been the key place for FDI canalizing and a strategic place for investors. Around 400 MNCs of the Global 500 companies have made way into the economy of China. Shanghai is normally the first choice. Statistics of the Industrial and Commercial Bureau of Shanghai Municipality reports that there were 365000 industrial and commercial business houses in Shanghai in 2000 among which 17100 are foreign enterprises (Kang and Shouzhen, 2002, p.3). FDI inflows from April 2000 to August 2012 cumulate to USD 266.36 billion. The sectors which allured most of the FDI inflows are metallurgical sector (31%), power (13%), infrastructure (85), services (85) and vegetable oils and Vanaspati (7%) (FDI SYNOPSIS ON COUNTRY CHINA, 2012). Conclusion Impact of globalization on China has been a mixed one; often it is not that glittering as it seems to be. Reduction of poverty is a much focused phenomenon in China after embracing globalization but the rising rural-urban inequality and occasional news of labor exploitation is at a high. The cost of health care and education also has risen to a substantial level, since globalization of the country. Environmental degradation in many forms especially in terms of immense green house gas emission on behalf of China has become a constant headache for the concerned country along with the rest of the global community (Wen, 2013). It is largely believed that the positive impact of globalization on Chinese economy is urban centric and only a few have managed to taste its good fruit. Standing at this critical juncture more pro-active initiative is desired on behalf of the government. Some of these efforts such as fee exemption policy in education and co-operative health movement in health care are already in action. However, public funding to combat environmental degradation is still at a low (Wen, 2013). The much celebrated Chinese success under globalization will only become justified if distributive efficiency is achieved among the masses and instead of capitalizing on the cheap labor the nation should also focus on technological upgradation. References 1. Bell, M. Khor, H. & K. Khochhar (1993), China at the Threshold of the Market Economy, IMF. 2. FDI SYNOPSIS ON COUNTRY CHINA (2012), available at: http://dipp.nic.in/English/Investor/China_Desk/CHINA-31August2012.pdf (accessed on March 4, 2013) 3. Huang et al (n.d.), Integrating China’s Agricultural Economy into the Global Market, available at: http://ageconsearch.umn.edu/bitstream/55023/2/Huang%20Chapter%205.pdf (accessed on March 15, 2013) 4. Huang, J. Wang, X. and H. 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