The Chinese Government Hand the Economic Reforms in China - Research Paper Example

Explain the three policies or measures the Chinese Government has adopted to drive forward the economic reforms in China, according to Doug Guthrie’sChina and Globalization, Chapter 4, China in the Global Economy, pp. 109-168. Name: Course No: Course Name: Instructor’s Name: Date: Explain the three policies or measures the Chinese Government has adopted to drive forward the economic reforms in China, according to Doug Guthrie’s China and Globalization, Chapter 4, China in the Global Economy, pp. 109-168. Introduction China underwent several reforms economically due to which, it gained the status of ever-growing economy. Doug Guthrie informs that Chinese government has taken three key measures to drive forward the economic reforms in China. The first was bringing in gradual reforms driven by state government in order to make China a global economy. The Chinese government introduced both external and internal economic policies. The second was the decentralization of economic decision-making while the third was to allow private economic sector to emerge to a certain extent without authorizing rapid privatization and keeping state owned industries as such. The industries continued to remain in governmental control, but the introduction of private sector initiated competition between industries that was healthy for the economy wholly. These three measures will be discussed in detail in the following sections. Section 1: China as a Global Economy The Chinese government brought reforms on global level as well as on domestic level in order to strengthen China as a global economy. The economic reforms included creation of new institutions locally as well as internationally, creation of innovated industrial strategies, development of special economic zones to attract domestic and foreign investors to invest in China and adoption of trading, exporting and developmental strategies to represent China as an economy interested in investments from internal as well as external sector (Guthrie, 2009). Export-oriented coastal development strategy implemented by Zhao played a crucial role in creating China as a leading trading economy. With this reform policy, the coastal regions became more autonomous and provided solutions for two issues, which were “employment of the surplus labor from the rural areas and improvement in industrial competitiveness” (Guthrie, 2009, p. 113) along with generating income for industrial firms. The coastal development strategy facilitated Chinese economy in many ways such as converting it “into a primary producer of goods across a number of different sectors”, bringing in “huge infusion of cash into the economy”, introducing an ‘open-door policy’ facilitating in internal growth of different sectors (Guthrie, 2009, p. 114). Major companies of the world like ‘Dell, Motorola, and Wal-Mart’ export from China and they benefit “tremendously from producing in China and exporting to the rest of the world” (Guthrie, 2009, p. 116) because they empower China globally. In addition to the coastal development strategy, the Joint Venture Law passed by Chinese government in 1979 authorized foreign enterprises to enter Chinese economy further giving it a global status (Guthrie, 2009). Chinese government adopted the strategy of open-door policy by authorizing foreign direct investment (FDI) and by giving autonomy to internal markets. China became one of the major beneficiaries of FDI since 1990s. For instance, in 1999, “FDI in joint ventures and wholly foreign-owned companies exceeded one-quarter of a trillion U.S. dollars” and in 2002, “China’s total inflow of FDI reached near half a $US trillion” (Guthrie, 2009, p. 132). The government and the internal firms realized the requirement for foreign capital, management upgrade and technological improvement. This realization led to “institutional accommodations that support rational-legal accountability and the rule of law within the firm” (Guthrie, 2009, p. 136). The Chinese enterprises were to settle in to the rules of global market. The demands of international enterprises and Western investors “has accelerated the rationalization of Chinese economic system not only at the state level but also within firms” (Guthrie, 2009, p. 136). Section 2: Decentralization of Economic Decision-making The economic reformation policies “of economic decentralization have transferred most economic decision-making power from the central government to localities by a series of tax and fiscal reforms” (Guthrie, 2009, p. 121). The revenue sharing contracts according to which, the assembled taxes were to be distributed as ‘central fixed revenues’ and ‘local revenues’ were signed by central and provisional governments. The central fixed revenues were for central government while the local revenues were to be divided between central and local governments. The local governments were empowered as they had ‘strong incentives’ as well as ‘institutional means’ to multiply their revenues. Due to this economic reform, local governments got involved in ‘economic activities and business affairs in the localities’ (Guthrie, 2009, p. 122). The central government worked towards proving itself as a ‘macroeconomic policy maker’ by passing laws and regulations essential for bringing in transformation in the working procedures of enterprises. These laws and regulations added to economic reform and encouraged the enterprises to facilitate the country in its economic progress. For example, it passed Joint Venture Law (1979), Enterprise Bankruptcy Law (1986), Company Law (1994) and the Labor Law (1995). All of these laws and regulations facilitated “all sectors of the economy to participate in the market competition on an equal basis and guarantee enterprises from all sectors to be treated indiscriminately” (Guthrie, 2009, p. 119). The responsibilities of government and governmental enterprises were transformed because of the decentralization of economic responsibilities of the Township and Village Enterprises (TVEs) and the local officials. The decentralization process gave strength to TVEs, but the economic power given to managers to take direct control of the firms was advantageous not only for the rural economy, but also for the urban industrial economy. The managers and organizations were given economic autonomy (Guthrie, 2009). Because of decentralization, the managers of TVEs and State Owned Enterprises (SOEs) got enough financial liberty and authority in the market economy for key decision-making along with their private and foreign funded economies. Chinese government empowered the managers and administrators of organizations in order to empower its overall economic condition. However, “SOEs still remain a massive force in China’s economy” (Guthrie, 2009, p. 128). China’s industrial assets and dominant crucial industries such as “financial services, power, telecommunications, steel and petrochemicals” (Guthrie, 2009, p. 128) and many other influential industries are still controlled by SOEs giving strength to Chinese government. Section 3: Government Controlled Privatization Chinese government allowed private firms to emerge as part of Chinese economy, but privatization is quite different as government controlled the process. “SOEs, urban collectives, and TVEs have remained largely in state hands, but a private economy has also emerged to coexist with the state economy” (Guthrie, 2009, p. 130). The emergence of private sector added to the completion between state owned sector and private sector that was healthy for the development of China economically. Foreign funded organizations and private organizations are somewhat different. They are either extensions of parent organizations that formed them or are formed as fully independent entities with managerial control, but they are funded by foreign parent companies (Guthrie, 2009). The joint venture between a Chinese firm and a foreign firm required long term commitments and transfer of technology. The managers of Chinese corporations learned about the rules of market through those firms that facilitated them with best lessons regarding accomplished shift to a market economy. Chinese firms learned through direct guidance, close relationships and business interaction with foreign firms. Chinese industries looked for “lucrative joint-venture deals that” would “bring access to technology and investment resources” (Guthrie, 2009, p. 145). For such deals, the Chinese industries brought improvement in quality, production and efficiency of management proving themselves competitive against their international companies. Overall, the Chinese industries worked in competitive environments and the government made sure that SOEs and TVEs get maximum benefit of the private enterprises by giving them relaxation economically and by supporting joint ventures. In addition to the governmental support, joint ventures and foreign investors also showed interest in Chinese market because of cheap labor due to which, they had no issue to develop their products in China, for example, Motorola (Guthrie, 2009). The transfer of technology, learning of practices of market economy and management and opening new markets, all were the targeted features of allowing foreign capital in China. Overall, the foreign influence affected Chinese working and attracted foreign investors in Chinese market because the Chinese industries learned from their foreign partners “through institutionalized relationships like joint board of directors, joint decision making processes, and through the process of negotiating a joint venture deal” (Guthrie, 2009, p. 165). This institutionalized relationship can be seen in the example of Hangzhou Telecommunications and Motorola’s relationship. The structure of capital firms, systems and norms of advanced market economies, all were learned and implemented to attract foreign investors (Guthrie, 2009). Conclusion The Chinese government brought economic reforms by following an open-door policy, which facilitated foreign investment and trading facilities to the Chinese market. The key measures that the Chinese government adopted in order to ensure its place in the global economy and to get successful economically are introduction and implementation of continuous economic reforms both internally and externally to set up its status globally; decentralization of economic decision-making by bestowing control of organizations whether foreign or local to the managers and owners to empower them, and finally, allowing emergence of private enterprises without issuing full authority of rapid privatization of state owned firms. Chinese government allowed foreign investment by implementing export-oriented coastal strategy and foreign direct investment, that are two major steps that transformed Chinese economy wholly. In addition to that, it implemented laws such as Joint Venture Law (1979), Enterprise Bankruptcy Law (1986), Company Law (1994) and the Labor Law (1995) to invite global investors in China to work on equal terms with the SOEs and TVEs. References Guthrie, D. (2009). China and globalization: the social, economic and political transformation of Chinese society. Routledge. Read More