Globalisation challenges facing China

The aim of this report is to identify the challenges that globalisation presents or is presenting to The People’s Republic of China, and show China’s reaction to these challenges.

Globalisation as a whole refers to “shift toward a more integrated and interdependent world economy.” (Hill, 2009, p6). Globalisation can be looked at from a market point and also a production point. A market point referring to creating a global market place where markets that were once separated by different barriers become one. Hill (2009). Globalisation of production refers to the manipulation and taking advantage of the differences related to factors of production worldwide, for example costs of different factors may vary. This is called out sourcing of production. Hill (2009)

China is a perfect example for globalisation ,with a population of 1.3 billion people and with a culture dating back 6000 years, these large numbers and strong cultural background form a both a large market and a large work force. Politically, China is governed by the CCP (Chinese Communist Party).

(Kahn, 2009) “China is still perceived as one of the key players to lead the world out of recession.”

1.1Methodology.

Secondary research has been used to compile this report. With an aim of getting academic facts about globalisation, and up to date information on China, both text books and internet sources have been used. The main text book for the research for this assignment has been International Business by Charles W.L. Hill.

2. China’s population

With just over 1.3 billion people, china has the biggest population and is the world’s largest country .As the world’s population is approximately 6.7 billion, china represents almost 20% of the world’s population .

2.1 China’s economy.

Since the introduction of the economic reforms in the late 1970’s which focussed on decollectivization of agriculture, liberalization of prices, decentralization of economic production, granting more independence to state-owned business enterprises, opening up the country to foreign direct investment; china’s economy has had substantial growth.

In the period of 1990-2004, it’s economy grew at an average rate of over 9.5%,the highest growth rate in the world. In the fiscal year of 2007, china’s GDP stood at US$3.4 trillion making it the world’s third largest economy by GDP, after the United States and Japan (CNN 2009), and in 2009 surpassed Germany becoming the 2nd largest economy in per capita terms, despite global economic slowdown.

Much of the success is attributed to china’s slow and steady approach in implementing the reforms.

China’s economy is expected to to grow by 9.5 % in 2010 (The State Council Development Research Centre, a leading state think tank)

From figure .2 we see that China’s output grew by 10.3% in 2010 to, slower than its growth in the previous quarter (11.9%), but not substantially slower. Inflation also eased, going below the central bank’s official target of 3%.

The slowdown is not necessarily bad news, china’s economy is now operating at full capacity.

3. Globalisation

Globalisation is “is the objective trend of economic development in the world today, featured by free flow and optimized allocation of capital, technology, information and service in the global context. It is the inevitable result of the development of productive forces and advances of science and technology, especially the revolution of information technology since the 1980s and 1990s.” (H.E. Ambassador Zha Peixin At Chinese Economic Association Annual Conference (14 April, 2003))

The influence of globalization on countries at different stages of development is very different

China has taken advantage of increased globalisation to promote its growth and development. over the past 30 years china’s share in world trade has increased by over 20 times . Trade dependence rose from 10 to 36%. Foreign Direct investment has increased by almost 2009 over the previous year making China the third largest recipient of FDI . According to a modular study on the synergy of FDI conducted by the Development Research Centre of the State Council, China’s GDP recorded an average annual growth rate of 9.7% over the past 20 years, of which 2.7% was attributed to FDI.

These effects of globalisation have helped the Chinese people in terms of improved lifestyle and annual income and china has been labelled the next super economic power.

In 1999, the world bank and the united nations development program issued a report which points that “the number of poverty stricken people is increasing in many places in the world but china is an exception”. The number of rural poor reduced from 250 million in 1978 to 30 million in 2000 and poverty incidence from 30.7% to about 3% in 2000.

However, along with these numerous opportunities ,came hefty challenges. This has led Chinese government to adopt a series of strategically significant policies so as to address the challenge of economic globalization

We shall look further into these challenges in the following sections

4.CHALLENGES & RESPONSES OF CHINA

China faces a number of challenges due to globalisation. Some of these include

The growing income inequality gap between the rich and the poor.

Unemployment, inflation

Westernisation and the loss of strong cultural roots, and increase in corruption.

Country-wide improvement of transport and communication.

However, the more “pressing” challenges faced by china are analysed in more detail below

4.1 health and education

Before the reform, China’s two key health indicators i.e life expectancy and infant mortality were much better than average for low income countries andmiddle income countries. In the World Health Organization’s (WHO) 1978 Alma Ata Conference Health For All by the Year 2000, China’s primary health care system

was featured as a model for the world. Life expectancy increased from 35 to 67 years and infant mortality dropped from more than 200 per 1000 to 42 per 1000. The health care system has gone through several rounds of market oriented reform since the 1980’s.

Despite high GDP growth rates in recent years, the quality of the health care system has not been improved or even been maintained in many ways.

Health care costs skyrocketed 15 fold even after inflation was taken into account (from 14.32 billion yuan to 662.33 billion yuan), as more clinics and hospitals are pressured by the profit motive.

Instead of continuing as a leader of health care performance, China has become a leader in the worldwide trend toward private health care financing

In July 2005, the Development Research Center of the State

Council released an official document admitting that market-oriented health care reform had not been a Success,

According to a People’s Daily Online report in October 2004, “China plans to set up a cooperative health-care network by 2010 to enable China’s 900 million rural residents to enjoy basic medical care.”91 In May 2004, China Daily reported that the government will invest 1 billion yuan ($121 million USD) in projects to improve public health infrastructure in rural areas

As with health care, education costs have skyrocketed in the last 20 years while the share of government financing has dropped significantly. In 1999, public spending on education was only 2.79 percent of GDP, in comparison to 4.38 percent of the world average. This means that the cost of education has become very high and children from rural poor families asr forced to drop out.

Also, with much emphasis being put on higher learning, education is increasingly geared toward book knowledge and college entrance exams, often ignoring community conditions and needs.

Education has therefore become a risky investment especially for poor countries as the chances of upward social mobility are limited

March 2005, Prime Minister Wen Jiabao announced a fee-exemption policy.

The policy will remove fees for 14 million students in the country’s 592 poorest counties. The plan will continue until all rural students receive a free primary education. The government also promised funds to modernize rural schools over the next five years to reflect education in urban centers-supplying technology such as satellite educational programs and educational DVDs.

4.2 Environmental degradation

As an economy grows, so does its demand for resources and environmental problems arises. China mainly exports are manufactured goods, and in the process of manufacturing there is always some form of degradation or pollution done to the environment.

An estimated 300million people are drinking contaminated water in china, only 20% of solid waste is properly disposed of, and only 10% of sewage is treated according to the Organization for Economic Cooperation and Development These environmental problems are costing 7% of China’ GDP, and will rise to 13% if this problem is not addressed properly.

In 1994, the government began a massive clean up campaign for the Huai River, one of the most polluted rivers in China. After billions of dollars were poured into the cleanup effort, the improvement of the water quality still remains an illusion

“The development of China has been accompanied by industrial and mining accidents, and severe ecological damage such as deforestation, desertification and soil erosion,” the report says. It estimates that 2.64m sq km, or 27.5% of the country’s landmass is now becoming desertified. “Some 400 million people are affected by extensive soil salination and blowing sand. This is leading to villages becoming buried, the reduced life of irrigation works and widescale respiratory diseases.” (OECD,2007)

China’s air pollution increased this year for the first time since 2005, the environmental protection ministry has said, due to sandstorms, a rise in construction and industrial projects, and more cars. The explosion of private vehicles in recent years (19 percent annual growth) has increased oil consumption.

The ministry found that the number of “good air quality days” in 113 major cities across the nation had dropped 0.3 percentage points in the first six months of the year compared with the same time last year.(physorg.com)

More construction and industrial projects that started this year due to economic recovery and the rapid increase in automobiles should also be blamed,” Chai Fahe, vice head of the Chinese Research Academy of Environmental Sciences, told the China Daily newspaper.

There’s also increased demand for oil and other fossil fuels occurs implicating a rise in carbon emissions. Both China and India are “carbon hungry” nations and in the past years, nations consent to “purchasing” carbon emissions (Carbon Offsets Daily, 2009).

The Chinese government has expressed a keen interest in addressing the problem by establishing many different laws and regulation regarding the environmental protection and resources management

As a solution to global warming, the Chinese president introduced the “carbon intensity measure”, in this, the nation is planning to decline its emissions of CO2 per unit of GDP by 2020 (BBC News, 2009). The government is hoping to promote renewable energy resource projects, such as hydroelectric, solar and wind energy, by offering financial incentives.

The Chinese government has allowed the proliferation of environmental NGOs, hoping these NGOs can fill in the gap to educate the public on related issues and address the country’s pressing ecological problems. There are about 2,000 officially registered environmental NGOs, with perhaps as many registered as business enterprises, or not registered at all. Many international NGOs such as the Nature Conservancy, Conservation International, World Wildlife Fund, and Greenpeace have established offices in China.

Many green NGOs have worked very closely with China’s State Environmental Protection Administration (SEPA). In December 2004, SEPA suspended the construction of about 30 large projects because they lacked the environmental impact assessment required by law

4.3 Competitors

China’s export-led economy has facilitated trading with other countries.. During the global recession prices of exports increased as a result of inflation. This gave way for other low wage countries to gain foreign direct investments from host countries that outsource labour.

In 2004, several multinational companies outsourced from India and Bangladesh which offer same or even less wages than china (srinvasan 2004)

china formed partnerships with its dominant economies, Brazil, india and Russia ( also known as the Big four) in order to reduce on the competition and create fairer trade conditions for the member countries.

4.4 Domestic consumption

China is an export led economy and it faces the challenge of transitioning to one that depends mainly on domestic consumption. An economy cannot rely only on foreign exports for future GDP growth. Domestic demand is weak as Chinese consumption is low.

Responding to the dramatic change in the economic climate, China has made a fundamental shift from over-relying on exports to boosting domestic consumption to keep its economy afloat, China’s Vice President, Xi Jinping, calling for a new direction, argued that “we must develop the economy mainly by relying on the domestic market and attach great importance to domestic demand, especially consumption demand, in driving economic development.”.

This may be achieved by emphasizing private consumption, keeping inflation low and sustaining a strong currency in order to keep the purchasing power of the consumer boosted. The transition, though healthy for the long-term, is unlikely to be smooth. Export-oriented factories cannot suddenly be rebuilt to serve domestic needs.

5. Conclusion

Since the economic reform when china opened up its trade barriers to other countries, it has seen high levels of economic growth.

Much of this success can be attributed to its large population which provided a large work force, that enabled increase in productivity making china one of the world’s leading exporters. One can reasonably say that china’s advantage in human resources has largely been liquidated.

However the number of elderly has increased alongside decreasing fertility rates. leaving the government with the challenge of improving health sector so as to

Higher education has increased significantly in recent years, but at the cost of basic public education for most children. One could reasonably propose that China’s advantage in human resources has largely been liquidated. This also partly explains why

Environmental degradation has also been a key setback and the government has encouraged NGO’s that focus on environmental issues to sensitises the public.. Chinese environmentalists need to gain independence both financially

and intellectually. The heavy dependence on international funding makes them vulnerable to political attacks. Some have been accused of being foreign agents who are trying to stop China’s development.

Instead of learning only from their western counterparts, Chinese groups need to have more exchange and communications with ecological colleagues from other developing countries

China is also putting more into research and technological development in order to face the challenge of competition. They hope that by offering superior products they will continue to remain at the top of the export market. But china still has a long way to go in terms of technological development and creativity.)`

China now depends so much on exports of labor-intensive products, directly competing with other developing countries. But for china to depend solely on exports is not wise so the government believes that by boosting domestic consumption, it will form a more balanced economy.

Globalisation has offered china opportunities as well as challenges. And it is striving to reap benefits from the advantages while avoiding harm from the disadvantages.