What has been the role of international trade in the development of China in the past two decades - Essay Example

"What has been the role of International trade in the development of China in the past two decades" The People's Republic of China is one of the most emerging superpowers since last decade. Historically speaking China is of the oldest civilizations with the records of dating back about 3500 years. In Beijing on October 1, 1949, Mao Zedong declared the founding of the People's Republic of China. The new government was the result of continuous wars and social conflicts in the past. Hence the people who were a victim of such social conflicts since two generations had a hope to prosper themselves despite of a weak economy caused by high inflation and their distorted homeland and transportation links. Therefore the Soviet example was embraced as a new political and economic model. Hence in early 1950's a new reconstruction program was taken up in economic and social areas. The new leaders were focused to restore economy, rebuilding war damaged areas and implemented leaderships in women, labors and other mass organizations as well. All this was done and attained through the control of politically loyal government sectors. In 1958, Mao announced a new economic program called "The Great Leap Forward" which was aimed to prosper the economy through industrialization and agricultural productions. Though The Great Leap Forward was not that fruitful the Chinese didn't lose hope and still worked hard to strengthen their agriculture and industry sector (OECD [1], 2006). It was in 1979 then when China rehabilitated and opened its economy and adopted more pragmatic approach on political and socioeconomic matters. This economic transformation had a reflective impact not only in China but on the world too. From the last two decades China has implemented market - oriented reforms which resulted not only in the largest reduction of poverty but also attained fasted growth in income levels as well. As a fruit of this hard and headstrong labor China today is the fourth largest economy in the world and has sustained an average economic growth of over 9.5% for the past 26 years. In 2006 its US $ 2.6b trillion economy was about one-fifth the size of the US economy. However by the late 1980s the economy was worked up with increasing rates of inflation. Due to which Austerity Program was introduced by the government of China by the end of 1988 (OECD [1], 2006). In early 1990s China's economy regained momentum. Deng Xiaoping a dominant leader of that time, in early 1992, made a series of political pronouncements designed to revitalize the economic reform and hence 'Social Market Economy' was formed. This resulted in a 10 year plan in the political system with bolder reform of the economic system. China is the world's most populous country. It is one of the largest producers and consumers of agricultural products. China is among the largest producers of rice, corn, wheat, soya beans, vegetables, tea and pork. And its major non-food crops include cotton, other fibers and oil seeds. Over 40 % of China's labor is engaged in agriculture though only 10% of the land is suitable for cultivation. Due to which its GDP contributes 13% because of agriculture. According to a survey China's cropland area is only 75% of the US total but still produces 30% more crops and live-stock than the US (Guo, 2006). Industry and construction comprises of 46% of China's GDP. Iron, steel, coal, aluminum mining, ore processing, machinery, textiles, apparel, cement, petroleum, fertilizers and chemical are foremost industries of China. Consumer's products have a wide range including toys, electronics, foot wear, automobiles and telecommunications. China's strength as an export-platform has contributed to increased incomes and employment. About 40% of GDP is the stases-owned sector. The chief driver of China's rapid economic growth is governed by the exports. For this China has pursued policies such as fostering development of foreign invested factories. Foreign invested factories assemble imported materials (components) into consumer goods for export by liberalizing trading (OECD [2], 2006). Since its establishment China has fostered and nurtured foreign relations very wisely. It has worked to win international support for sole legitimate government for all China including Hong Kong, Macao and Taiwan. As a result in March 2008, the number of countries that have diplomatic relations with Beijing rose to 171. The most important boost of economic growth was more strengthen when China formally joined the WTO (World Trade Organization) in December 2001 and is progressing significantly implementing its WTO commitments making it more open and connected to the world. As a part of this agreement China agreed to lower tariffs and abolishes market obstacles. Hence introducing a framework of Global Production Network (GPN). Making China as an international manufacturing hub (OECD [3], 2006). China's WTO accession has increased trade of goods and services at double digit rates. It now accounts for almost 4% of world merchandise exports and 35% of imports more than twice than world average. With a practically boundless supply of low-cost labor and large inflows of Foreign Direct Investment (FDI) accompanied by transferred manufacturing facilities and technologies, China has placed itself as a global export platform. China runs trade surpluses with most of the industrialized world and has been the receiver of transplanted manufacturing capabilities from the United States, the European Union, Japan and Taiwan among others (Guo, 2006). The United States has been a key provider to China's rise as an economic power. As China's largest export market and a key investor in the Chinese economy, the US has helped China become a global manufacturing center and an increasingly important center for research and development. The result of this trade and investment has enabled china to hoard large U.S. dollar assets. In addition U.S universities, laboratories and industries have trained many Chinese scientists who have aided in a substantial transfer of technology and know-how to China (Guo, 2006). China is growing capital investment in manufacturing capacity for sophisticated telecommunications and information technology products that are likely intended at export to the United States. The trends in the computer and the peripheral equipment industries suggest U.S dependence on Chinese manufactured apparatus is increasing rapidly. U.S direct investments in China cover a wide range of petrochemicals, restaurant chains and manufacturing sectors. Almost more than 100 - U.S based multinational companies are presently working in China. Through the end of 2007, U.S estimated investment was $57 billion which made U.S the sixth largest foreign investor in China. With a population of more than 1.2 billion people and an annual growth rate of 8% China's Gross National Product (GNP) is tripled from U.S $250 per capita in 1980 to U.S $800 per capita in 1997. In November 2004, China was ranked as the third largest trading partner of the United States (Guo, 2006). A quick review on China's economy is as under: GDP (2007): $3.249 trillion (exchange rate-based) Per Capita GDP (2007): $2458 (exchange rate-based) GDP real growth rate (2007): 11.4% Natural Resources: Coal, iron-ore, crude oil, mercury, tin, tungsten, antimony, manganese, molybdenum, vanadium, magnetite, aluminum, lead, zinc, uranium, hydropower potential (world's largest) Agriculture: Products --- Among the world's largest producers of rice, wheat, potatoes, corn, peanuts, tea, millet, barely, petroleum, and commercial crops include cotton, other fibers, apples, oil seeds, pork and fish, produces variety of livestock products. Industry: Types --- miming and ore processing, iron, steel, aluminum, coal, machinery, textiles and apparel, armaments, petroleum, cement, chemicals, fertilizers, consumer products including foot wear, toys and electronics, automobiles and other transportation equipment including rail cars and locomotives, ships and aircraft and telecommunications. Trade (2007): Exports --- $1.221 trillion: electronics, machinery, apparel, optical, photographic and medical equipment and furniture. Main partners --- United States, Hong Kong, Japan, European Union, South Korea, Singapore. Imports --- $917.4 billion: electronics, machinery, mineral fuel and oil, chemicals, plastic. Main partners --- Japan, Taiwan, South Korea, United States, Malaysia and Australia. China is a liberal state and it did not liberalize out of failure as other developing countries mostly take the decision to establish competitive industries. Chinese economy has a dualistic industrial structure and has a strong payments position and tremendous inflows of Foreign Direct Investment (FDI). China had already reduced its tariffs significantly before its accession to the WTO. The Chinese economy has a prospective for developing self contained and technology concentrated. Even the large scale manufactures and has integrated high quality human capital with infrastructure costs with low costs. The following table gives a general analysis of China's external trade for the year 2000. REGIONAL COMPOSITION OF CHINA'S EXTERNAL TRADE, 2000 (Billions of dollars) Total of which: Foreign-funded Enterprises Trading Partner Exports Imports Balance Exports Imports Balance All economies 249.2 225.1 24.1 119.4 17.3 2.2 NIEs 66.2 63.2 3.4 36.0 39.2 -3.2 ASEAN1 11.6 17.1 -5.5 3.9 8.6 -4.7 Japan 41.7 41.5 0.1 23.3 28.4 -5.1 European Union 38.2 30.8 7.4 17.3 16.6 0.9 United States 52.2 22.4 29.8 28.8 10.0 18.8 Other economies 39.0 50.1 -11.1 10.1 14.5 -4.3 1 Excluding Singapore China has also introduced and implemented the phenomena of "Diplomatic Finesse". Under this China's number one national priority has not only been economic reform but modernization as well and to achieve this objective a peaceful international environment is required (OECD [3], 2006). One method China employs to secure such a favorable environment is 'Diplomatic Finesse' which resulted in China becoming officially a dialogue partner with ASEAN in July 1996. As its economy grew during this decade, China became more integrated, joining organizations as the World Bank, International Monetary Fund (IMF) and the regionally focused Asian Development Bank (ADB). China's swift expansion caught the international community by surprise. As China became one of the worlds largest exporters and importers, its aptitude to exert influence through economic means grew exponentially (OECD [3], 2006). As a matter of fact china has rightly established that a country can absorb massive amounts of substantial capital quickly. The mechanism that has facilitated China's ability to affirm a great role for itself in world affairs has been its phenomenal economic performance over the past two decades. China's leaders have begun to assume to more active role in global affairs and have established enthusiasm to be a strategic partner with powerful Western countries in the preservation of world peace (OECD [3], 2006). China's constant reforms in its directed-credited system have additional advantages, such as building the fundamentals for local bond markets. These and the other steps are important in the long-term parallel development of the competitive market-based financial system China will need by mid-century. China's reforms in this direction are many and rapid-fire, but such a system is unlikely to be ready until roughly the year 2040. The United States seeks to develop U.S exporters' and investors' access to the Chinese market. As China grows and develops, its requirements for imported goods and services will grow even more swiftly. The U.S Government continues to work with China's leadership to ensure full and timely conformity with China's WTO commitments; including protection of intellectual property rights. And to persuade China to move to a flexible, market-based exchange rate in order to further increases U.S exports of goods, agricultural products and services. In order to attain these objectives, the United States has engaged with China in the Strategic Economic Dialogue (SED). The SED is a biannual event, focusing on three major themes: 1) Maintaining sustainable growth without large trade imbalances 2) Continued opening of markets to trade, competition and investment 3) Cooperation on energy security, energy efficiency and the environmental and health impacts. As China moves in the direction of producing the world's maximum GDP there is debate about its potential to challenge United States and European Union nations for supremacy in the global economy. One can point to its growing current account surplus in trade with the United States, the increasing dependency of the American economy on China's purchases of U.S stocks and funds. Because of that integration with the world economy, that is, from importing from her vicinity economies parts and components and machinery and equipment, to raw materials and primary commodities. China is becoming like a bridge between Asian economies on one hand and the U.S and the EU markets on the other hand. According to the trade balance with her trade partners, since 1990s, China has progressively become the middleman between Asian NIEs, Japans ASEAN and the U.S and EU markets. Works Cited: Organization for Economic Cooperation & Development (OECD) [1], 2006. Trade, Agriculture And Development. Oecd Global Forum on Agriculture Organization for Economic Cooperation & Development (OECD) [2], 2006. oecd Information Technology Outlook. Organization for Economic Cooperation and Development Organization for Economic Cooperation & Development (OECD) [3], 2006. Transport Links Between Europe and Asia. OECD Guo, Sujian. 2006. China's "Peaceful Rise" in the 21st Century: Domestic And International Conditions. Ashgate Publishing Read More