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Essay on Economic Impact of China

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Introduction

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. ...read more.

Middle

The majority of Chinese imports comes from Asian region countries, namely 63%, but this is only consistent with world directions of trade. Chinese exports tends to the Advanced Industrialised Economies particularly the EU and US. Moving from a pegged rate against the US to a trade weighted indeed, has given a more accurate value of the exchange rate and less intervention is required. It is a significant step towards financial deregulation in the future. The sixth policy implemented was taxation reform in which a centralised tax collection was established. This increased government revenue considerably enabling further development. IT also encouraged domestic saving which has reached 40%. This has contributed to China's strong current account surplus. Similar reform in the banking system with the elimination of non-performing loans has increased the market-orientated economy. This has lead to China's greater capital controls, which enabled the economy to sidetrack the Asian financial crisis of 1997-98 which lowered global growth from 4.8% to 2.2%, but Chinese growth by only 6.4% of GDP. China's one child policy also saved the economy from the threats of over-population and also extended the decreases in poverty. ...read more.

Conclusion

China faces significant labour shortages in the future due to its one child policy. Already the working age population is at 63% and by 2050 it is estimated to reach as low as 50%. This will be a significant constraint on growth. Capacity constraints in China's ports and transportation are also limiting growth rates and need to be addressed. Increased pressure, particularly from the EU, for revaluation of the Yuan is also an issue. Retaliation through protectionist policies has begun as economies feel the Yuan is unfairly undervalued. China's disregard for the environment has lead to increases in pollution, desertification and erosion. For example, acid rain produced by the increased productive capacity has destroyed arable land in central China. Environmental degradation is set to wipe between 3 and 10% of GDP last year. These negative externalities are growing problem. Water shortages in China have also marked a slight backwards movement in HDI and this needs to be addressed. So overall, the Chinese government has been extremely successful in promoting the many benefits of globalisation. The rapidity of these trends however looks set to limit potential of china's economy in the future. China needs careful policy to ensure the benefits continue to outweigh the costs of globalisation. The economic significance of China for the global economy makes the forthcoming years imperative for global growth. ...read more.

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