6. Without Chinese economic reform, global recovery may be doomed. China needs to boost domestic consumption rather than relying on exports or the world will be flooded with goods that nobody wants! Comment ?
1. Introduction:
China has had a spectacular economic development and has come to play an increasingly important role in the world economy. For a long time, the Chinese economy was a centrally-planned economy in which all companies were owned by the state. In 1978 China started an economic reform. by reformists within the Communist Party of China (CPC) led by Deng Xiaoping.
China had one of the world's largest and most advanced economies prior to the nineteenth century, while its wealth remained average in global terms.
Economic reforms of a capitalist type began in 1978 and occurred in two stages:
- The first stage, in the late 1970s and early 1980s, involved the decollectivization of agriculture, the opening up of the country to foreign investment, and permission for entrepreneurs to start up businesses. However, most industry remained state-owned.
- The second stage of reform, in the late 1980s and 1990s, involved the privatization and contracting out of much state-owned industry and the lifting of price controls, protectionist policies, and regulations, although state monopolies in sectors such as banking and petroleum remained.
2. Discussion:
The current (2011) success of China's economic policies and the manner of their implementation has resulted in immense changes in Chinese society. Poverty was reduced and both wealth and wealth inequality increased, leading to a backlash led by the Maoist New Left. In the academic scene, scholars have debated the reason for the success of the Chinese 'dual track' economy, and have compared them to attempts to reform socialism in the Eastern Bloc and the Soviet Union, and the growth of other developing economies.
For 2010, China was ranked 140th among 179 countries in Index of Economic Freedom World Rankings, which is an improvement from the preceding year.
Impact on world growth:
China is widely seen as an engine of world and regional growth.Surges in Chinese demand account for 50, 44 and 66 percent of export growth of Hong Kong, Japan and Taiwan respectively, and China's trade deficit with the rest of East Asia helped to revive the economies of Japan and Southeast Asia. Asian leaders view China's economic growth as an "engine of growth for all Asia"
Reasons for success of China:
Scholars have proposed a number of theories to explain the success of China's economic reforms in its move from a planned economy to a socialist market economy despite unfavorable factors. China's success is also due to the export-led growth strategy used successfully by the Four Asian Tigers beginning with Japan in the 1960s - 1970s and other Newly industrialized counties.
Problems faced by The Chinese Economy :
The economic reforms have increased inequality dramatically within China. Despite rapid economic growth which has virtually eliminated poverty in urban China and reduced it greatly in rural regions and the fact that living standards for everyone in China have drastically increased in comparison to the pre-reform era.
At last I want to talk about is the problems that appeared in the Chinese economy during the transition to a market-oriented economic system. China’s economic model to some extent was a surplus plus shortage economy, instead of shortage economy, throughout the central plan era. So, the Chinese economic system is facing a structural issue.
Environmental Issues:
On the other hand, China has environment concerns. We’d like to shift China’s current energy mix from a heavy reliance on coal, which accounts for 75% of China’s energy, towards greater reliance on oil, renewable energy and nuclear power. Since 1993 China has been a net importer of oil. Today, imported oil accounts for 20% of the processed crude in China. Net imports are expected to rise to 3.5 billion barrels per day by 2010. A harmful byproduct of China’s rapid industrial development has been increased pollution. Almost all our nation’s rivers are polluted to some degree, and half of the population lacks
access to clean water. Fortunately, in recent years China has strengthened its environmental legislation and made some progress in stopping environmental deterioration.
Exchange Rates:
The exchange rate is not only an internal issue but also an international one. Regarding this issue, we need to resolve two problems: Whether we need to adjust the fluctuating Yuan or just revalue the RMB. From my point of view, the government probably will do it in two steps. In one word, a stable and flexible exchange rate system is essential for the economy. It is the need for sovereignty. But also for the regional and worldwide economy. To some extent, China achieved high economic growth at a cost of income distribution. According to the World Bank, the Gini coefficient of China was 0.403, which is slightly above the internationally-recognized danger level. Some relevant measures have been taken by the new governments, such as abolishing agricultural tax to improve farmers’ income which has helped narrow the gap between rich and poor, who are then ones who pay. This is essential for a stable system.
There are still a lot of obstacles that need to be overcome on the way to a full Chinese reform. China is not only the market of Chinese but also of the world. We believe the problems that exist in the economy will finally be resolved.
• Opportunities:
– China (and other emerging market countries) are providing an important boost to global demand and output
– Export opportunities for countries producing minerals and capital goods
• Threats:
– Risks of an unsustainable boom in China leading to inflation
– Strong Chinese growth is raising commodity prices ‐ China’s purchase of commodities has a direct link into the inflation outlook globally
– Risks of a protectionist backlash – more trade disputes and debates over China’s currency manipulation.
3. Conclusion:
Lastly it is concluded that even after the various achievements like- China emerged as the world’s largest merchandise exporter in 2010, accounting for 10.1% of global exports. China also became the world’s largest economy in 2010 on a nominal dollar basis. But still, there are many problems faced by the Chinese Economy that can be the hurdle for its economic growth & standard of living of the people over there. The strength of China is its cheap technology which results in the production of goods at the lowest cost possible through their technology which is further exported in other countries at the lowest rates which greatly affects the domestic producers of a particular country. And no country wants to have a flood of goods in their domestic market and that is also imported from the China, which have cheap technology but the quality is not so good. So, the China needs to concentrate on their domestic consumption rather than relying on exports because the achievements are not for the long term as the Market changes is not stable, it keep on changing with the changing needs, habits, demography, income, taste & preferences of the people, etc and to survive & maintain the particular position in this kind of changing environment of market is very difficult.
Submitted by:
HARPREET KAUR
MBA 1 (c)
