China’s Global Economic Impact


China has undergone a lot of growth in the past few decades, a transformation that has seen the country become a major economic hub. Its transition came about as a result of significant changes in its political, cultural, and economic spheres. Tough decisions had to be made for China to grow, and as at now, it remains an epitome of a successful struggle for growth. In as much as China continues to experience the benefits of growth, the transition has not been smooth.

 

China’s Global Economic Impact

Economic System

Economic growth is one of the most significant priorities for all countries besides internal and border security, and political stability. For a country to grow economically, there are several considerations put in place to ensure that include its geographic capabilities, the strength of its agricultural sector and other sectors such as tourism. These considerations make up a country’s economic system. An economic system is, therefore, a system that oversees a nation’s economic growth by pursuing spatial justice through the distribution of resources, goods, and services. A nation’s financial system is responsible for the cycle of production and sale that, in some cases, expands beyond its geographical borders, through the export of surplus goods and services. China’s global economic impact is facilitated by a unique economic system that has seen the country increase its production and sale of products beyond its borders, enhancing the economic growth of the country.

While an economic system is supposed to be a perfect system that has been well- researched and found to be sustainable, most commercial orders incur problems or fail at times. These issues arise from several factors, one of them being the fact that the economic sector is a dynamic sector that shifts in different directions. Due to this, the need for change inevitable to prevent the system from being obsolete. Scarcity is one of the fundamental problems of an economic system where sometimes society demands so much, yet the projected resources cannot satisfy the demand. Frey and Schaltegger (2019), note that intellectual and cognitive scarcity is one of the most significant shortage in the 21st century that is most underrated because of an over-emphasis on tangible resources such as land and machinery.

For a long time now, China has made significant changes in its economic system, which include a transition from a command economic system to a mixed economic system. According to Zhang (2018), a mixed economy is one that displays both capitalist and socialist characteristics. Such a system is akin to what China has embraced since the inception of its transition to a superpower. Zhang goes ahead to describe that such economies experienced decreased restrictions from the central government, and this promotes private investors who drive most of the nation’s economic growth. According to this author, three main economic engines exist in China’s mixed economy, and they include; the central government, local governments, and enterprises.

The roles of these three economic engines are distinct, and their roles lead to the creation of a three-part economic model that oversees China’s growth. For example, the central government primarily focuses on political stability and strategic planning (Zhang, 2018). It determines the most appropriate global alliances and ensures the continued growth of various sectors to create an economy that thrives in different industries. The local governments focus on taxation, and other policies such as land policies, to create the most business-friendly environment for investors (Zhang, 2018). The enterprises are the creative drivers with entrepreneurs and investors working hard to identify new markets and invest in them as China is recognized as one of the most capital intensive economies (Sinclair & Li, 2017).

Problems arise from the different economic systems, and a mixed economy system is not exceptional. The most prominent issue in a mixed economy is its structure tends to favor more government control, leading to fragmented authoritarianism (Zheng, 2017). According to this author, the concept of fragmented authoritarianism involves the government enacting policies to increase liberties for investors, but failing to implement them accordingly. The failure leads to more state intervention in economic decision making. The role of the government in solving this problem is centered on its capacity to accumulate political support (Zheng, 2017). The author adds that governments are required to prevent opposition to progressive ideas, and instead support proper decision making, by ensuring independent groups’ views are heard and not overshadowed by interest groups. Zheng (2017) also adds that the government has the responsibility to promote the autonomy of local governments in their pursuit of increased economic growth.

Privatization

To foresee economic growth, China had to make several changes in its financial system, and one of the changes involved the deregulation of most business policies that had proved to impede private ownership of businesses. The government of China oversaw the transfer of many firms from government-owned companies to being owned by private investors. Donaldson and Zhang (2017) define privatization as merely the process of a government shifting the ownership of most business entities to the private sector.

The early 1990s to mid-2000s saw the increased privatization of the economy of China. According to Gan et al. (2017), the process of privatization was done with keen consideration on the fact that the government maintained embedded autonomy over most of the business entities it transferred to the private sector. The embedded autonomy served more good to the privatization process as the government oversaw the needs of minority groups considered in the process. As of today, China remains a global leader in the privatization process. The nation continuously monitors mergers between different firms taking over state-owned entities, to further increase its economic development (Zheng, 2017).

Several routes of privatization exist, and they include the sale of business entities to the highest bidders, leasing properties, and selling a fraction of the shares of the entities, among other routes. A government can use one or a combination of more than one of these routes to privatize its economy. For it to transition into a more privatized economy, China used more than one method, and the chosen method largely depended on the type of business entity. Donaldson and Zhang (2017), note that the agricultural sector was predominantly privatized through leasing. The government leased most of its land to farmers, a move that led to heated debates on the best way to privatize the agricultural sector. Some critics argued that the best way to privatize the agricultural industry is to sell the land rather than lease it because it would guarantee farmers more autonomy.

Selling a fraction of the shares is another route of privatization, and selling a wholly state-owned entity is another route to privatization. According to Zan et al. (2017), selling a fraction of the shares proves to be as common as selling a wholly state-owned entity in China. The two methods are used after a series of considerations, which include the financial capabilities of the people in the region, and the need to prevent economic inequality. China’s mixed approaches to the privatization process have proven to be effective. It is because it puts into consideration the dynamic nature of the geographic and demographic differences that make up one of the largest countries in the world.

One of the essential benefits of the privatization process of the Chinese economy is that it reduced government regulations and promoted innovation and entrepreneurship. Donaldson and Zhang (2017), add that the privatization process expanded spatial justice because it oversaw the efforts to distribute resources equally. Privatization in China occurred with a lot of influence from the state, to ensure that interest groups with more resources did not overshadow other independent investors. It led to all individuals having equal access to opportunities to own properties in China. According to Donaldson and Zhang (2017), the privatization process also enhanced the country’s utilization of the whole population, which led to increased gender equality. Women were encouraged to take part in economic activities, which not only increased the living standards of most households but also promoted increased literacy rates among Chinese women. Since then, women have become a driving force in economic growth in China.

While privatization came with numerous benefits, there are also demerits associated with the process. One of the disadvantages is that it led to class inequality. A good example is an agricultural sector where leasing land to farmers was not only expensive that promoted inequality and class tension but also curtailed farmer’s rights (Donaldson & Zhang, 2017). Another problem is that it led to more government regulation, which is contrary to the whole concept of privatization. Zheng (2017), adds that the privatization process in China was marred with vested interests from different parties, including political factions. These factions keep trying to tamper with decision-making, which has contributed significantly to social inequality. Social inequality has led to an increase in the gap between the rich and the poor, hence social tensions. The social pressures have contributed to the rise in contentious politics in China, which threaten the political stability of the nation (Feng & Yi, 2016).

Like most transitioning nations, China has a unique privatization system. The Chinese privatization system is different in the sense that it predominantly began with partial privatization, and second, the privatization is deeply decentralized (Zheng, 2017). Local governments are deeply involved in the privatization process, a move that is meant to increase competition and enhance growth and reforms. The local governments’ involvement has, however, been criticized as being used to proceed the interests of politicians and interest groups. Despite this, the decentralized aspect of the privatization process is critical for the Chinese economy. As mentioned earlier, China has a vast geographical area and diverse economic interests. It is thus crucial to ensure that policymaking addresses all these dynamic factors, to ensure that each region gets equal opportunities specific to its economic needs.

Globalization

China’s globalization of its economic system came about due to several reasons, and one of them is the increased prosperity of global market economies. According to Overhault (2016), china’s change and reforms came about due to the efforts of Deng Xiaoping, who fought hard to open China to other foreign markets. Following his efforts, China experienced an increase in productivity, especially in the agricultural sector that saw farmers export products and reap much from the same. Its economy began progressing, and the anti-market socialist ideologies that most of its leaders propagated started becoming less popular (Overhault, 2016). As time moved, most Chinese citizens became more and more open to the new economic systems, and those with the means supported political factions that enforced a mixed global market economy.

The process of globalization for a country occurs in four phases. The first is when a country slowly begins to embrace the culture of foreign companies and allowing them to set businesses in the nation. According to China Daily (2019), China experienced this phase between the mid-1970s to early 1900s, with at least twenty thousand foreign companies starting businesses in China. The second phase is where a country’s own companies explore international markets and even set up shops in other countries. China Daily (2019), reports that China underwent this phase between 1992 and 2000 with Chinese overseas enterprises earning the nation an average annual direct investment of 2.3 billion dollars.

The third phase is evident when a company changes its globalization strategy from a predominantly nation-oriented approach to embracing the World Trade Organization. China experienced this phase in the early 2000s with the country choosing to upgrade to the World Trade Organization by joining the organization in 2001. After that, China experienced a lot of growth, with its companies merging with other companies overseas to firmly establish a strong business network. Finally, the fourth phase for China occurred in 2008 when the financial crisis of 2008 led to significant changes in the business environment. According to China Daily (2019), the financial crisis allowed China to re-strategize its resources and priorities, giving it a chance to set firm roots in the global market properly.

Different strategies are used to globalize a business, and one of the most common approaches is mergers. The Chinese government enhanced the globalization of its companies by reducing trade barriers through proper policy-making to promote international trade (Guo, 2018). The second strategy China used is through the establishment of supranational institutions that could easily break local barriers and thrive in the international market. Increasing availability is also another way a country can encourage the growth of entrepreneurship. China increased access to finances to promote entrepreneurship at a global level.

Globalization enhanced China’s economy in many positive ways, and one of them is the fact that China experienced rapid growth because it enlarged the market for its goods. Overhault (2016), reports that since China globalized its economy, the contribution of overseas investments is exceptionally significant to the overall annual income of the nation. This author adds that globalization led to increased demand for Chinese products, which led to increased innovation and entrepreneurship, in a bid to meet this demand. Globalization also increased job creation, which was previously a problem considering China’s large population. Globalization also has negative impacts on China, and one of them is the bid to increase production has led to illegal business processes that have contributed to pollution. Xi (2018) adds that to meet growing demand, some Chinese companies resorted to low-quality products, which have led to China’s products being associated with poor quality.

Theoretical Framework

Game theory best describes the economic transition of China. According to Stanford (2019), game theory is a philosophy that acknowledges the convergence of more than one utilities in the path of finding an equilibrium. The periodical notes that game theory involves shifting strategies and sometimes moving off comfortable paths in a fixed utility environment, to find a new balance that advances the player’s needs. Game theory in the Chinese economic growth is seen in the way different players either supported or opposed globalization and transitioning of the economy, based on their personal interests.

The development of political factions is one of the manifestations of game theory in the Chinese economy. A good example is the privatization of the economy, where for a method to be arrived at, Zheng (2017) reports that multiple factions with vested interests tried to influence the decision-making process. The influence was meant to ensure that the paths established aligned with their individual interests, thus maximizing the chances of them reaping the most benefits from the changes in the economy.

China’s Key Natural Resources

China’s primary natural resources include coal, natural gas, oil, and water. China has a thriving mining industry, with the nation being one of the leaders in gold mining and other metals such as zinc, iron, and lead. The mining industry significantly contributes to the economy of China in many ways, and they include an increase in annual revenue and job creation. Zhi et al. (2019), share that resource endowment is a critical determinant of the economic growth of a nation. Natural resource endowment significantly contributed to China’s growth, especially in its initial stages of transformation. Arable land is another natural resource that China enjoys because it supports agriculture, which has grown to become an integral part of the economic growth of China.

Due to an increase in agricultural activities in China, water is a critical natural resource in its economy. Zhi et al. (2019), note that water plays a crucial role in the Chinese economy since all industries rely on water to run. However, these authors note that the over-reliance on these resources has led to their depletion and environmental degradation. Another resource China heavily relies on is its human resources who not only provide manual labor but also a diverse population of skilled labor. China’s digitization of its economy has led to the Chinese government enhancing innovation in technology, with artificial intelligence taking the forefront in its growth (Zhang & Chen, 2019). Some of the benefits of technology in the Chinese economy can be seen in the immense growth exhibited by Alibaba, an e-commerce enterprise led by Jack Ma.

While China’s natural resources promise a lot of potentials, there are also the downsides of these resources. Air pollution is one of those downsides, and it is inevitable considering the Chinese economy heavily relies on coal mining and the production of such products that emit carbon into the atmosphere. According to Zhi et al. (2019), one of the regulations put by the government of China to protect its natural resources, especially in the mining industry, is through regulating the amount of carbon emissions. These authors note that the carbon emission regulation has significantly helped reduce the misuse of natural resources as more individuals decide to diversify their economic endeavors.

Other measures China is taking to protect its natural resources is through regulating the use of various mechanisms to enhance production. A good example is the agriculture sector, where the use of pesticides and other chemicals not only hamper the safety of the products but also lead to the degradation of arable land (Zhang et al., 2018). Food security is an essential aspect of the nation, and the government is enforcing the regulations to ensure that meeting the demand does not involve a compromise in the quality.

The need for companies to use modern equipment in their production processes is one of the ways in which the Chinese government is ensuring the protection of its natural resources. The use of modern equipment enhances the protection of its natural resources in several ways, and one of them is the proper utilization of all of its resources (Zhi et al., 2019). Advanced equipment made possible by artificial intelligence not only reduces waste but also ensures that human resources are not over-utilized.

As much as every country welcomes economic development, there are adverse side effects to this, and one of them is environmental degradation. China has one of the largest populations, and its economic transition also involved a change from a predominantly meat-based diet to more agricultural produce. To meet the demands of China’s large population and even export some of the produce, farmers increase their productivity through the use of chemicals such as fertilizers, pesticides, and herbicides. The use of these products has led to the development of cancer villages due to soil pollution. According to Zhang et al. (2018), a cancer village is a region whose mortality and morbidity due to cancer is above the nation’s average. The use of the chemicals mentioned above to enhance production has led to increased soil pollution. The substances introduce heavy metals into the soil that are, in turn, consumed by human beings and animals, leading to increased chances of the development of diseases such as cancer.

As mentioned earlier, the mining industry in China is one of the most thriving sectors in the nation. However, this does not come without its demerits, and one of them is high levels of carbon emissions. Zhang et al. (2015) air pollution has increased the rate of air-related complications such as asthma and allergy attacks that account for some of the highest emergency room admissions in Chinese hospitals. The cost burden of these complications and the strain they put to the health sector cannot be ignored, hence the government’s efforts to curtail industrial processes that contribute to air pollution.

Conclusion

China’s growth is a critical element for all developing nations since its growth has proved that all nations have a chance at economic development. Despite the challenges, the country continues to grow, maintaining an open-minded system characterized by diverse and quick decision making structures. This aspect of the country has increased its ingenuity and enabled it to navigate challenges effectively.

 

References

China Daily. (2019). Four major phases have supported globalization of Chinese companies. Retrieved fromhttp://www.chinadaily.com.cn/a/201901/02/WS5c2bfd17a310d91214051f36.html

Donaldson, J. & Zhang, Q. (2017). China’s Agrarian Reform and the Privatization of Land: A contrarian view, Journal of Contemporary ChinaVol. 22(80), 655-678. Retrieved fromhttps://doi.org/10.1163/9789004304987_028

Feng, C. & Yi, K. (2016). Disorganized Popular Contention and Local Institutional Building in China: A Case Study In Guangdong, Journal of Contemporary China. Retrieved from http://dx.doi.org/10.1080/10670564.2015.1132959

Frey, B. & Schaltegger, C. (2019). 21st Century Economics: Economic Ideas You Should Read and Remember. Berlin: Springer.

Gan, J. et al. (2017). Decentralized Privatization and Change of Control Rights in China. Retrieved fromhttp://www.ckgsb.edu.cn/uploads/201706/27/201703%20draft%20all%20edited.pdf

Stanford University. (2019). Game Theory: Stanford Encylopedia of Philosophy. Retrieved fromhttps://plato.stanford.edu/entries/game-theory/#Evo

Sinclair, D. & Li, L. (2017). Taxation in a mixed economy: the case of China, Studies in Economics and FinanceVol. 34(1), 49-61. Retrieved fromhttps://doi.org/10.1108/SEF-08-2015-0183

Zhang, L. & Chen, S. (2019). China’s Digital Economy: Opportunities and Risks, International Monetary Fund.Retrieved fromwww.imf.org.com

Zhang, P. et al. (2018). Disparity of nitrate and nitrite in vivo in cancer villages as compared to other areas in Huai River Basin, China, Science of the Total EnvironmentVol. 612(12), 966-974. Retrieved fromhttps://doi.org/10.1016/j.scitotenv.2017.08.245

Zhang, W. (2018). China’s mixed economy: merging markets and state. Retrieved fromhttps://news.cgtn.com/news/3563544e776b7a6333566d54/share_p.html

Zheng, Y. (2017). Privatization with “Vested Interests” in China. Retrieved fromhttps://www.researchgate.net/profile/Yu_Zheng15/publication/301341959_Privatization_with_Vested_Interests_in_China/links/5987eb23a6fdcc756257bed5/Privatization-with-Vested-Interests-in-China.pdf

 

 

 

 

 

 

 

 

 

 


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