Globalisation and Its Impact on China

Discuss the impact of globalisation on one or more economies, with reference to economic development and environmental consequences.

Globalisation is the increasing economic integration of many domestic economies, including the increased integration of domestic markets into global markets. The rate of globalisation rapidly increased in the 1980??™s, resulting in a number of positive and negative impacts on nations. Globalisation has had a major impact on China??™s economy in the last few years, especially since its ???opening up to the world??™ period in 1979, and even more so after its entry into the World Trade Organization (WTO) in 2001. The areas in which globalisation has had a great impact upon China are in its entry into the WTO and international convergence, economic growth, economic development and quality of life, unemployment, trade flows, Foreign Direct Investment (FDI) and Transnational Corporations (TNC??™s), distribution of income, environmental externalities, market failure, and impacts of the international business cycle.

Globalisation has impacted on China through its entry into the WTO in 2001, which came after 15 years of lobbying. Globalisation has increased the importance of the WTO??™s functions and policies, making it essential for China to gain membership in order to reap all of globalisations benefits. China now has to comply with the WTO??™s rules and agreements, and faces pressure to comply with its stance of trade liberalisation. This trade liberalisation, along with greater access and links to global markets (also due to membership), has helped China to increase its trade flows. Also, China??™s WTO membership along with its ???opening to the world??? policy has greatly encouraged FDI and TNC??™s to China. Finally, the WTO??™s influence has resulted in international convergence as economic systems throughout the world move towards more market based systems. This can be seen in China as it has moved from being a planned economy, to that of a socialist market. Part of this international convergence has been a series of market-based reforms, resulting in greater resource efficiency, economic growth, and the spread of legal principles promoting greater personal freedom.

Countries who embrace globalisation tend to experience much higher rates of economic growth than those who do not. Increased world gross product has impacted positively on China, whose economic growth rate averaged 11% throughout the 1990??™s. During this time China was also experiencing a low inflation rate and a trade surplus, contributing to its overall growth. In China, rapid urbanisation has stimulated the construction of infrastructure, and consumer demand has increased by 10.1% since 2001. Since 2001 industrial production has also increased by 15%, mainly due to the expansion of China??™s car and steel industries. As a developing country, globalisation has caused China??™s production to shift from agriculture towards manufacturing and services, with agriculture as a percentage of GDP down from 23% in 1997 to 13% in 2003. Services have risen from 29% in 1997 to 34% in 2003, and manufacturing is up from 48% in 1997 to 53% in 2003. This shift in services has been partially due to an increase in tourism, whilst the increase in manufacturing has resulted in an increased reliance on elaborately transformed manufactures (rather than on STM??™s), which has broadened China??™s export base and has increased the range of goods available to its people. Although China has been a driving force of economic growth in its region, it has also been blamed for some regional deflation due to a surplus in manufactured electronics. In 2004 China??™s economic growth rate was recorded at 9.5%.

Globalisation also impacts on economic development and the quality of life within economies. In China improvements in the general quality of life are clearly visible, with China??™s Human Development Index rising from 0.554 in the 1980??™s, to 0.625 in the 1990??™s, to 0.726 in 2003. Since the ???opening up??™ period of China, which began in 1979, poverty has been reduced on a large scale, with 400 million people rising above the US$1 a day poverty measure. Even so, economic development has not been equal across China with vast differences between rural/urban areas, eastern/western provinces, and males and females. Urban incomes have risen from 8.5% in 2002 (US$ 828) whilst rural incomes have risen by 5.7% (US$ 211). China??™s increased growth rate means per capita incomes are now rising faster than those in developed countries. China??™s life expectancy has risen from 69.7 in 1997 to 70.3 in 2003, and infant mortality has fallen from 35 per 1000 births (1997) to 32 per 1000 (2003). Illiteracy rates have also fallen, males from 9.8% to 7.9% (97-03) and females from 33.1% to 22.9% (97-03). Greater international visibility and participation has encouraged better human rights, particularly with China improving its judicial system so that detention without trial will no longer occur. It is hoped that further international visibility will continue to improve human rights in the future. A final impact of globalisation on living standards is the merging of the world??™s cultures. This may lead to a loss of languages, foods, and customs.

Unemployment has proved to be China??™s most severe challenge. In 1997 the unemployment rate stood at 3.1%, by 2003 it had risen to 7.8%. This has been due to a number of reasons. As the result of increased global economic exposure and a move towards a socialist market economy, millions of SOE jobs have been cut. In 2001 alone 5.15 million people were retrenched. The restructuring of the economy has led to the closure of many inefficient industries. The shift from agriculture to manufacturing and services has also been partly to blame, with 1.7 million agricultural jobs lost every year, although this is beginning to be corrected with 1.6 million created in manufacturing and 7.6 million in services. Although at the end of 2003, 3.13 million people were still receiving unemployment benefits.

Globalisation has impacted upon China??™s trade flows, resulting in 2003??™s imports rising by 40.5% to US$298.56 billion and exports rising by 32.3%. China??™s net trade volume also increased in 2003, by 7.5% on the previous year. In the past 10 years China has managed to turn its CAD into a Current Account Surplus. China??™s membership to the WTO has encouraged trade liberalisation, which has helped China to emerge as a major market for, and supplier of goods and services. This has led to China now being ranked as the 3rd largest trading nation in the world.

Another impact of globalisation on China has been increased financial flows due to increased foreign direct investment, and transnational corporations. China??™s entry into the WTO in 2001, along with its ???opening to the world??™ policy have both worked to actively promote FDI into China. This capital influx has stimulated strong growth in China??™s manufacturing sector, and has helped growth rates remain at 8-9%. In 2003 China approved 34000 new FDI projects and enterprises, causing FDI to rise 19% on the previous year. Between 2006-10 China is forecast to attract approximately US$100 billion annually. TNC??™s are attracted to China due to its cheap labour, and every year more and more jobs are being lost to China, particularly from Mexico, Indonesia, and the Philippines. After moving its production facilities to China in 2000, Streets ice cream now manufactures all of its products in China. It has managed to cut costs greatly, even though it now has to count shipping costs to Australia. TNC??™s also give China the benefit of greater access to improved technology due to the spill over. Although, some say TNC??™s are only enticed to developing countries with incentives (e.g. cheap labour) that reduce the ???trickle down??? effect. The trickle down effect is when higher income earners receive benefits from globalisation, and those economic benefits ???trickle down??™ to lower income groups through their activities. When TNC??™s exploit workers, often with government support, any possible ???trickle down??™ to the rest of the population is minimised.

A negative impact that globalisation has had on China is that income distribution has become more unequal. This is a result of the benefits of globalisation, e.g. FDI, not being spread equally throughout China. Large differences can be seen between rural and urban populations, as the Engel coefficient demonstrates. Although both rural and urban Engel coefficients are 1.3% lower than in 2002, urban stands at 37%, whilst rural is at 48%. This increasing economic divergence is likely to result in economic and social imbalance, and potential problems in the future.

WW Rostow??™s ???Stages of Economic Development??™ model says that countries go through five distinct stages of economic development: traditional subsistence society; transitional stage; take off; drive to maturity; and high mass consumption. Rostow also believes that during stage 4, economies may sacrifice environmental quality in their pursuit of growth. There is concern that China may pursue unsustainable practices in order to maximise its globalisation opportunities. China??™s increased industrial production is expected to lead to poorer environmental quality. This can already be seen in South Eastern China, the region of most industrial activity, with air pollution proving to be a particular problem. Another example can be seen in the 3 Gorges dam project. This attempt to generate hydroelectricity resulted in the flooding of potential world heritage areas. There are also concerns that the decrease in soil fertility may result in China becoming a net importer of food in years to come.

Whilst income inequality and environmental externalities are forms of market failure, there is another type, which is when governments fail to provide all necessary infrastructure to handle the economic growth and development taking place. An example of this can be seen in China, in that blackouts are becoming increasingly frequent. This is because the power grids can no longer cope with the fast pace of urbanisation and the new economy, and the government is yet to do anything to fix the problem.

Finally globalisation negatively impacts upon China by making it subject to the international business cycle. This increases its exposure to external shocks, and increases the risk of capital flight due to greater financial flows.

In conclusion, globalisation has had an immense impact upon China??™s economy, as well as on its people. These impacts are bound to continue well into the future, and will hopefully become positive for China, overall.