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Effects of globalisation case study- China Essay

China is the world’s seventh largest economy and the largest country in terms of population size. It has also become the 8th largest world exporter of manufactured goods and the second largest economy in the world, after the United States, on the basis of purchasing power parity. The impact of globalisation on China has been profound, having an impact in a number of different areas.

Government Strategies to promote economic growth and development

Between 1978 to 1994 China abandoned agricultural collectivisation, replacing it with a system of household responsibility, allowing individuals to make their own production decisions. Individuals could sell their surplus output in free markets after the state quota was met. This lead to dramatic increases in food production and incomes. Surplus income was invested into privately run town and village enterprises responsible for light manufacturing. The government also increased the authority of local officials and plant managers in industry and permitted a wide variety of small-scale enterprises in services designed to increase productivity with the ‘profit incentive’. Today, non-state economies account for 40% of China’s gross domestic product (GDP).

In 1980 Special Economic Zones were established in the southern coastal provinces of China as a result of its ‘Open Door’ policy, adopted towards foreign trade and investment. These zones attracted foreign investment through incentives offered such as low tax rates, exemption from import duties, cheap labour and power, and less stringent regulations. This resulted in an increase in trade from 10% of Gross National Product (GNP) in 1978 to 36% of GNP by 1996. In 1992 tariff rates were reduced from 32% to 19%, supporting China’s drive for foreign investment.

Economic growth, development and quality of life

China has been experiencing a high rate of economic growth above 10% per annum. It uses foreign investment funds to finance export industries, enabling it to maintain large foreign currency reserves and receive technology transfers from industrial countries.

Higher productivity and the increased flow of money entering China as a result of globalisation have been increasing development and the quality of life, reducing the number of people below the poverty line. Although incomes in China are very low, the poverty line reflects absolute poverty based on the minimum subsistence necessary to maintain life. Higher incomes have allowed for more investment for further development in the country and living standards. The life expectancy at birth has also dramatically increased from 35 in 1950 to 72 in 2002.

The Human Development Index is a number less than 1 (1 being the highest) calculated to enable the comparison of standards of living across different countries. It is based on life expectancy at birth, levels of educational attainment and gross domestic product per capita. China has a Human Development Index of .721, making it a medium developed country.

Global Trade, Investment and Transnational Corporations

Globalisation and trade have had a great impact on China.. Nearly 400 of the top 500 Transnational Corporations (TNC’s) have opened business or invested in China. By July 1999, China had 334000 overseas-invested enterprises with actual investment of US$288.94 billion.

China ranks as the top exporter of many labour intensive products such as garments, shoes, clocks and bicycles and over the past few years many TNC’s such as ‘Streets’ ice cream have moved their operations to China to take advantage of low production costs. These low costs are due to the tens of millions of young job seekers ready to work for even less than the official minimum monthly wage of 700 yuan. Although they provide employment, workers are often forced to do long shifts often under poor conditions in order to support themselves and their families.

TNC’s have affected the development of local businesses that are unable to update their technology as often as large, overseas companies. Outdated technology means that their resources are not used as efficiently, reducing productivity and forcing wages to remain low. Unable to compete with large multinational firms and wealthy nations, small businesses have been forced to do business locally, never growing and reaching their full potential. Larger businesses that have been able to keep up with changing technology, however, have greatly benefited through increased productivity as a result of the increased level of technology brought about by globalisation.

Distribution of Income and Wealth

Despite average incomes rising, income and social inequality in China have grown between rural and urban populations. China’s growth and development are very dependent on the Special Economic Zones in the southern provinces which are dominated by foreign investment and technology. People living in these areas earn approximately 20000 yuan a year. In contrast, the northern provinces that rely more on agricultural production for the generation of income and employment opportunities earn an average of less than 6000 yuan per year. This is the major cause for inequality in the distribution of income. The top 20% of income earners receive 42.5% of the countries GDP. By international standards, China has entered “a zone of income distribution inequity.”

Environmental Consequences

Globalisation has contributed to the deterioration of the environment in China due to a loss of arable land as a result of economic development. An increased population growth in urban areas as people move to be closer to factories results in the clearing of large areas of land and a strain on resources. China, unlike many developed countries does not have extremely strict standards on the disposal of waste. Factories set up by overseas companies often create a lot of pollution and dangerous waste product not always properly disposed of in order to cut production costs. Persistent organic pollutants and the exploitation of fisheries pose major threats to the environment. High levels of energy use bear a large responsibility for man made greenhouse gasses in the atmosphere. These factors contribute to larger problems such as global warming and ozone depletion. The integration of financial markets and trade relationships has also increased the risk of ‘contagion’.

Global Financial Markets and The International Business Cycle

With more large businesses moving to China, there was a large demand on funds from the financial markets. China, however, does not have a financial market competitive with overseas markets. Many Chinese financial institutions are also required to lend money, under government policy, to government businesses, which are often inefficient, depleting the supply of funds. For this reason, most of the money is generally borrowed from overseas institutions.

Like all economies, China acts as a part of the International Business Cycle, moving through booms and recessions. This connection to global movements is heightened as a result of globalisation. The Asian Crisis of 1997 is an example of this. As people lost confidence in Asian economies and withdrew money from investments affecting economies through lost output, rising unemployment, higher inflation and poverty. China was not as badly affected in this crisis as other Asian countries. This was because foreign investment was in the form of assets rather than shares. This meant that investors were not able to withdraw their money quickly as they were in other Asian countries.

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