The_Global_Economy

Globalisation refers to the process of increasing integration among different countries throughout the world; this results in the establishment of a single world market. Globalisation encourages overseas trade and the reduction or removal of trade barriers hence allowing for economic growth and development. One economy that has been drastically affected by globalisation is China. The main areas that have been affected in this economy are: financial markets, income distribution, trade, investment, and environment. To promote the growth of China’s economy the government has employed various strategies that have propelled China forward giving it the most rapid economic growth status in the world. These strategies have aided the economic growth of the nation as well as propelling the overall quality life upwards. In recent decades China as a nation have encountered drastic increases in international trading and investment flows with thanks being owed to globalisation. These increases have then lead to high levels of economic growth in China’s economy. Between the years of 2001 and 2007 China experienced an average economic growth rate of 8.5% per year, with 2007 seeing an all time high of 13% . The Human Development Index (HDI) in China has risen from 0.527 in 1975 to 0.777 in 2005 . There has also been an increase in the education level and, on average throughout the country, a decrease in poverty. Unfortunately these improvements are not shared evenly and this will be discussed later in the essay. Up until China lowered restrictions on its foreign polices it had a banking system that was both inefficient and weakly structured. However globalisation has given China’s banking system the encouragement required to propel itself forward in an attempt to match global standards and attract foreign involvement. Since the banking sector was opened by the government to foreign competition at the end of 2006, China’s regulators have been ensuring that state owned banks improve their efficiency and strengthen their corporate governance in the stock market. Since the Shanghai and Shenzhen stock markets were established in the early 2000’s China’s foreign share trading volumes have increased at a rapid rate. It can be said that these stock markets were largely opened for that reason. While these stock markets were hit heavily during the global financial crisis China’s GDP continued to expand. The government has aided in the globalisation of China’s stock markets by simply relieving some of their previously strict restrictions. Whilst globalisation has caused massive economic growth in China, it cannot be said that the benefits are distributed equally amongst the nation’s people. When examined statistically it can be seen that the richest 10% of people in China account for 45% of the nations wealth whereas the poorest 10% only hold 1.4% . Speaking regionally, the costal cities receive much greater benefits of globalisation than inland China, simply due to their proximity to the rest of the world. For example in Shanghai and Shenzhen between 1978 and 1998, per capita incomes increased by 11%. The unevenly dispersed incomes in China show that while the standards of living overall have improved, equality is not shared thus widening the gap between the richest and poorest communities, as seen in figure 1 . The government has not done a lot to make income distribution more equal throughout China in the hope that due to the economies continual growth the good effects of globalisation will be more widespread throughout the country. Globalisation largely encourages international trading and economic growth, China’s economy, largely due to its immense population, has benefited tremendously from this. In the past 3 decades China’s exports have gone through the roof, just in the period between 2003 and 2006 the nations exports grew in value by 35% as seen in figure 2 . These exports now account for a total of 35% of China’s GDP, however China is also a large importer with the majority of its resources being imported from overseas. A major turning point for China was when it joined the World Trade Organisation in 2001 as a response to the globalisation trend, and reduced its trade barriers, thus leaving the gates open for foreign investors and international trade. Recently China’s overall trade surplus in merchandise has averaged around 2.5% of GDP , this is a massive figure for exports in any country. The government played a massive role in encouraging economic growth through the means of trade; it did this by drastically lowering trade barriers such as tariffs with other countries. As well as this the Chinese government peg their currency, which means they keep it at a constant value, this keeps China’s exports competitive in the global market allowing for continued economic growth and development. The Chinese government has also set up various international trade agreements with countries such as Thailand and Singapore, agreements such as these allow for easier exports and usually create greater profit again promoting economic growth. Figure 2 China's Exports As globalisation caused an overall increase in income levels, the amount of saving has also risen. With an increase in saving the banks were provided with more funds, this saw an increase in investment from banks in local businesses, boosting economic growth in China. However it was not until the Chinese government strategically opened the banking sector to foreign competition at the end of 2006 that foreign investment in China’s financial markets really took off. Foreign investment in China has provided the country with increased employment, particularly along the costal cities. In the early 2000’s China founded its first stock market in Shenzhen, this provided a completely new means of investment for both domestic and foreign investors again encouraging economic growth and development. The job of founding this stock market was one initiated by the Government of China, another strategy they adopted in order to promote economic growth. As previously mentioned the trend of globalisation has caused an increase in economic growth. Running parallel and in proportion with economic growth is the nations demand for resources, which then leads to environmental issues. It is commonly known that the majority of China’s exports are manufactured goods; unfortunately the manufacturing of goods always provides the environment with some form of degradation or pollution. The carbon dioxide emissions of china have drastically risen over the past few decades, as seen in figure 3 . It is estimated by the OECD (Organisation for economic cooperation and Development) that 300 million people are drinking contaminated water, only 10% of sewage is treated and that only 20% of solid waste is properly disposed of. These issues cost China 7% of its GDP and this figure is predicted to rise to 13% if drastic action is not taken. While it took a while the Chinese government have begun to take action against the degradation of the environment by implementing various strategies such as the banning of domestic logging, tightening the environmental legislation and setting targets on the use of hydroelectric power rather than coal fired. Figure 3 Chinas Rising Carbon Emissions It is evident that the Chinese government is a responsible government. Its economic policies not only serve to meet the needs of China’s economic progress, but also take into account the possible impact on the world. One example of the government promoting economic growth is China’s open door policy. The open door policy, implemented in 1978 by Deng Xiao Ping, simply opened China’s doors to other nations wishing to trade with it. The policy was a huge success and in effect boosted the Chinese people’s consumer confidence and established a pattern of liberal thinking among them. As well as this in 1992 cuts to tariffs and other forms of protection were used to encourage greater domestic efficiency through international competition. Another hugely successful government policy aimed at globalisation was China’s tenth five-year plan (2001-2005). The plan was mainly focused at achieving an economic growth rate of 7% per year, which it achieved quite easily. Possibly the most influential moves for China in the global market was its admittance into the World Trade Organisation in 2001. This allowed for the diversification of its export base, the attraction of more foreign investment and the encouragement of more innovation in the Chinese domestic economy. In conclusion China’s economy has been greatly assisted by the trend of globalisation, in terms of economic growth and development. As china lowered their trade barriers they were given positive impacts as a result of increase in international trade and foreign investment. The Chinese governments invention of the Shenzhen stock market provided a new channel for both domestic and international investment. However all these positives have not been distributed evenly amongst the nations population and have caused massive issues with the environment. The government has implemented various strategies, which have been a major factor in encouraging China’s economic growth and development. The impact of globalisation on the majority of China’s economy has been, for the most part, positive and could not have been achieved without the strategic thinking of the government and its mindset for economic growth.