To what extent has globalisation been benefical to China's economic growth?

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To what extend has globalisation (through trade and Foreign Direct Investment) been beneficial to China’s economic growth?


          China’s economic transformation is one of the most dramatic economic developments of recent decades. Indeed, during the period 1979-2005, China’s growth rate has averaged 9.7% per annum, and its integration into the world trading system has been as remarkable: its share in world trade has increased from less than 1% in 1979 to 6.4% in 2005. China became the third largest trading nation after the United States and Germany in 2005. China’s major trading partners are the European Union followed by the United States and Japan. Together, they provided markets for over 51% of China’s total exports in 2005, and made up almost 34% of China’s import bill.

During the past 50 years, China’s industrial structure has evolved in three phases. Firstly, there was a period of heavy industrial development during 1952-78. The government prioritised the development of heavy industries such as steel, machinery and chemicals. Secondly, in 1979-94, China diversified its industrial structure by emphasising on lighter manufacturing industries, such as food and textiles. However, since 1995, the Chinese industry had suffered from massive over-capacity resulting from extensive industrial investment. To rectify structural weaknesses, China entered its third period of industrial development, which was focused on expanding technology-intensive sectors and upgrading the technological level of all industries.

Today, China is a major driver of growth in the world economy boosting both global supply and demand with many of its industries completely integrated into the world supply chain. As one of the largest global production platform and emerging market, China is contributing to the emergence of a truly globalised world economy. With the largest population and one of the world’s fastest growing economies, China has the largest potential market of any WTO member.

   In this investigation, I aim to identify to what extent, has globalisation through trade and FDI been beneficial to China’s economic growth?


Just over 25 years ago, China began the renovation from a centrally planned to a more market based economy, by gradual economic reforms. In order to make this transition happen, the Chinese Government realised that it would be necessary to promote access to foreign capital and advanced technology through greater integration into the multilateral trading system. China went from autarky to a more open economy through a gradual and highly managed transition. China did not officially join the WTO until the 11th December 2001, after 15 years of negotiations with GATT, the original organisation of the WTO. China’s accession to the WTO symbolised its ongoing integration into the world economy, providing more secure and predictable market access both for China and its trading partners.

China has seen incredible economic growth from the late 1970’s to the new generation we live in today. Economic growth is most frequently measured using gross domestic product (GDP), as you can see from the table below; China’s real GDP has seen a constant trend of growth, averaging an 8% rise per annum in the selected years below.

Table 1: China's Economic Indicators, 1998-2003

Table 2: Germany and US Economic indicators, 1998-2003

The extent of China’s economic growth can be expressed by comparing the figures to other large economies. Changes that took decades to achieve in other countries are occurring in China over the course of just a few years. While China routinely grows at rates of 7 to 9% annually, the United States achieved its position as the world’s largest economy by sustained growth of about 3% over a period of 100 years, Germany only experienced an average 1.3% growth and Japan’s average growth rate between 1971 and 1991 was just 3.85%. Even the other “Asian miracle” countries have not grown as fast as China. South Korea, Taiwan, and Malaysia achieved growth rates between 1971 and 2003 of 7.06, 7.35 and 6.53%, respectively.

Since 2000, China’s contribution to global GDP growth (in purchasing power terms) has been more than half as big as the combined contribution of India, Brazil and Russia, the three next largest emerging economies. China’s increasing demand for imports (to meet rising domestic demand and exports) has been an important source of growth for the world economy. 

Its thirst for basic commodities such as aluminium, steel, copper, coal and oil has helped push their world prices to record levels. When a large country like China supplies additional quantities of a product on world markets, it will cause the world price to fall. Likewise, when such a large country increases imports, it drives world prices up. Simple economic theory explains this by supply and demand diagrams of products. If we use aluminium as an example, you can see from the graphs below, if supply of aluminium increase, than prices will fall. If demand for aluminium increases, than the price will increase.

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This is precisely what has happened over the past few years. China is a net importer of raw materials, a net exporter of manufactured goods, and is large enough to exert pressure on the prices of these goods. With rapid urbanisation, industrialisation and infrastructure construction, China is importing ever greater amounts of raw materials and primary products, pushing up world prices of key commodities. You can see from Appendix.2 that Ore, slag and ash, Mineral fuel and oil, and cooper have seen a 141.0%, 64.2% and 46.3% change in demand respectively from China, ...

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