Essay on Economic Impact of China

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China's economy has been the global standout as a beneficiary of globalisation. Chinese government reform in both macro and microeconomics has lead to the economy reaping many of the benefits of globalisation. Globalisation can be defined as the increased integration of the economies of the world, converging towards one global economy.

The process of globalisation has been extended by increased linkages in trade, investment, finance, technology and labour. Globalisation has enabled significant increases in free trade, with regional trade agreements reaching 205 in 2007 compared to 23 in 1990, and China has dominated the process of specialisation with incredible efficiency. Globalisation has had significant advantages for China's growth which has averaged over 9.5 of GDP for the last 10 years, and development with China moving from 95th in HDI ranking to 81st, with Life expectancy, adult literacy and GDP per capita all increasing by 10% respectively. China now consumes 60% of the world's commodities. For China, globalisation is a "force for good." (Downer, 2006).

Chinese developments towards today's globalised economy began in 1949 – 1977. China was a planned economy, with subsistence farming and government control. Growth, productivity, innovation and incentives for profits were all low, but the economy avoided many of the problems facing today's economy. Unemployment was low, inflation was low, but standards of living were at an all time low.

The second phase of Chinese economic development began in 1977. The first policy was the decollectivisation of the agricultural industry. Individuals were allowed to retain surplus production of goods and services despite still servicing a commune system. This move rapidly increased incentive for work, encouraging entrepreneurship, productivity and economic growth. This policy was vital in helping 200 million Chinese escape absolute poverty.

The second policy adopted was the formation of Special Economic Zones. These zones allowed foreign direct investment and enabled companies concessions on taxation and other restraints. This "open door policy" was the key feature of China's modernisation. Multinational Corporations were attracted to China because of their low production costs, particularly for labour-intensive industry. China's large domestic market and efficiency in transport and communication continues to attract investment today. This has lead to China's accumulation of the 2nd highest level of foreign currency reserves in the world. Increased investment also afforded the opportunity for transfer of new technologies that has lead to a more capital intensive economy. New managerial techniques and administrative business skills also has benefited the economy. China now hosts over 7000 MNCs which contribute 47% of GDP. This policy, particularly, has helped China raise its gross national income to US$7.4 trillion, becoming the 2nd largest world economy by purchasing power parity.

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A third policy adopted in the period 1977 – 2000, was the reduction in inefficient Sate Owned Enterprises. The privatisation of industry has lead to extreme growth and allocative efficiency. This has lead to structural change in the economy, that Chinese government has been ineffective in handling. The privatisation has lead to mass unemployment with rates said to be as high as 20%. The reduction in State Owned Enterprises has increased income inequality and the mass shift in population towards coastal cities.

Following the Uruguay round in World Trade Organisation talks, the US and European Union were required ...

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