Chinas Growing Economy
After North America, Europe, and Japan, the
area of China, Taiwan, and Hong Kong
"is a fourth growth pole in the world
economy" (Jue 108) which in 1994
was expected to double in size by 2002.
Today, the growth rate is still on track
to fulfill that prediction. Recent
Chinese economic policies have shot the
country into the world economy at
full speed. As testimony of this, China’s
gross domestic product has risen to
seventh in the world, and its economy is
growing at over nine percent per
year (econ-gen 1). Starting in 1979, the
Chinese have implemented
numerous economic and political tactics to open the
Chinese marketplace
to the rest of the world. Chinese reform measures even
anticipated the rush
of foreign investment by opening newly expanded industries
to out-of-country
investors. As trade expands globally and countries within
geographical
proximity and of similar cultural descent and philosophies ally
themselves in
order to better compete on a world level, we are seeing the
development of
increasing number of geographical trade alliances, whatever the
underlying
reasons behind each. The alliances that have been in place for a
while are
proving to be very successful in competing in the international
markets,
stimulating the economies of nearly all of their member states. Effects
of
this change in economic strategy by a world power can be felt by
practically
every nation of the globe involved in international trade. The
change in the
amount of imports and exports to and from China will increase
the demand on
countless markets. Also, with all the foreign investment China
is receiving, the
socialistic republic will only grow more and more
interdependent upon the world
economy. However, the impressive growth rate of
China’s economy is not without
its shortcomings. Problems such as inflation
and inefficient state-owned
enterprises plague the rise of the Chinese
economy. When China opened its
economic borders 19 years ago,
environmentalists spoke of the
"efficiency" of their farming systems and how
they used hardly any
organic fuels in the production of food for their people
relative to some of the
other countries of the world-most notably the United
States. What they neglected
to mention, however, that one farmer at the end
of one rake struggling to feed
his family kept fuel consumption very low
indeed. It was not, by any stretch,
"efficient." Matching conditions still
exist today. Rumors of the
wonderful prosperity of the south and eastern
provinces have reached the more
isolated-and less prosperous-interior
provinces. Those current farmers who would
travel in order to be more
prosperous themselves are often stopped at the
borders of industrial growth
and made to turn back. Everyone in China seemingly
wants a share, but the
industrial provinces can physically support no more drain
on their existing
housing and infrastructures, and they are finding themselves
unable to
enhance their current positions despite their economic prosperity.
When
examining an issue, it is imperative to honestly look at all sides, and
not
all of China’s "sides" are forthcoming. The country has indeed
become
more open toward foreign investment, and in fact openly courts it. China
have
been known to have placed several restrictions on the multinational
companies
that have opened operations within their borders, but they are
generally not
so restrictive as to be prohibitive. For example, after IBM
accepted China’s
conditions regarding the true ownership of IBM’s facilities
and environmental
rulings, it seemed that all of the rest of the world wanted to
join in. Deng
Xiaoping called China’s entrance to and courting of the
industrialized world
"crossing the river by feeling for the stones"
(The Economist 26). In
"feeling for the stones," China’s already
realized economic transformations
have "vastly improved the lives of
hundreds of millions of people" (The
Economist 26)- Chinese people.
Economic measures instituted by Deng
Xiaoping have been grouped together, under
the general term of gradualism,
but many observers now say that in order for
China to continue its
double-sized growth over the long term and to rectify the
problem of the
state industries that are losing billions of dollars, economic
"shock
therapy" needs to be administered, and quickly. But the current
plan of
China’s President Jiang Zemin and his advisors includes no such
shock
therapy. It does include, however, divesting the government of all but
one
thousand of the more than three hundred thousand state-owned businesses
that
have cost the Chinese government $85 billion in looses over the past ten
years.
The following chart shows the distinctions of several of China’s
economic
indicators, and their changes since 1987. Table 1. Selected Economic
Indicators
(Billions of dollars) Factor 1987 1997 Change Gross Domestic
Product 300 610 610
Merchandise Exports 30 180 150 Foreign Investment 2
48 46 Hard Currency Reserves
25 128 103 Losses of State-Owned Industries
3 88 85 (Business Week, Sept. 1997)
From the preceding chart, the growth
in China’s GDP over the past ten years in
nearly indefinable. Other
indicators are highly favorable, with the economy’s
only apparent problem
being that of the losses of the state-owned industries.
The losses
incurred over the past ten years could have served extremely well
in
furthering the quality of life of the Chinese people, rather
than
"simply" supporting the workers in those industries. Those
workers
represent no small percentage of the Chinese population- there are
100 million
workers in those state supported industries that have lost so
much money
(Clifford et al.). The plan of action proposed by Jiang Zemin in
rebuilding the
Chinese economy includes: · Restructuring state
enterprises. Already
responsible for a third of the country’s industrial
output, these could be
converted to public corporations. When these companies
become shareholder-owned
companies, it opens the door to foreign competition.
Government holdings can be
at the level of minority shareholder. ·
Strengthening financial markets. Set up
the equivalent of our SEC and allow
annual capital-generating stock listings in
Shanghai and Shenzhen. (China
already has a start on regulating securities
exchanges (Reuter’s).) · Selling
state assets. Currently, there are 305.000
state-owned businesses. The
government would retain 1,000; the remaining would
be sold. Those that cannot
be sold will be allowed to go bankrupt. · Building
social services. Literally
millions of Chinese citizens stand to lose their jobs
through the sale and
conversion of state-owned businesses. This action is
intended to both replace
some of those state-owned enterprises and provide
assistance to those
affected in the form of training, housing, and pensions
design. · Cutting
trade tariffs. Though China is not a member of ASEAN, the
country does aspire
to join the World Trade Organizations (WTO) by the year
2000. Tariffs
must be reduced to 15 percent by that time in order for China to
be eligible
for WTO membership (Business Week). Even while concentrating on
internal
adjustments, the government apparently intends to work toward that
end.
Jiang’s objective is to build a "complete market system" which
will
give China a chance to grow at an average of 6.5 percent annually for
about 25
years and come forth as a $5 trillion modern industrial superpower
(Clifford et
al.). If the President is able to succeed with his plan of
action, the impact
will be tremendous for the global economy of the 21st
century. Hong Kong, the
center of the Chinese capitalism, could have the
opportunity to be side-by-side
with London, Tokyo, and New York as financial
centers. As long as Chinese
individuals move in on global bonds and stock
markets to help finance
everything, like superhighways to steel mills, China
could take part in even
more parts of the world’s capital. The main goal for
China’s modern foreign
policies is the development of the Chinese
infrastructure. The significance of
improved communication and transportation
cannot be over-stressed. Economically,
enhanced means of communication and
transportation allows more expedient supply
of demand scheduling. Two of the
latest Chinese reform measures to aid in the
development of the country are
the Provisional Regulations on Direction Guide to
Foreign Investment and
the Catalogue Guiding Foreign investment in China. Both
these policies place
specific industries including telecommunications,
machinery, and electronics
on top priority. Funding for these projects come from
foreign investments and
appropriations from the Chinese government in the form
of grant financing,
and legislative or administrative support. Yet another
example of the Chinese
emphasis on industrial based growth is far reaching goal
of having just under
100 million telecommunication lines by the year 2000.
China’s Central
Ministry of Posts and Communication said that in order to
complete this major
task China will enlist the aid of major overseas suppliers
and create
manufacturing plants within the nation. AT&T, Motorola,
Northern
Telecom, Alcatel, Ericsson, NEC, and Siemens are just a handful
of the
multinational companies which hold a considerable share of the Chinese
telecom
market, once again proving that China is becoming a party to
interdependence.
The Chinese pharmaceutical market, much like Chinese
industrial markets, is
experiencing rapid growth due to reforms in China’s
economic strategy. The
nation’s government has decided to lower import
tariffs and remove the
necessity of an import license to bring
pharmaceuticals into the country. Also,
patented foreign drugs, such as
Tylenol, are now being protected from
counterfeiting by administrative
action. The result of these provisions are
overseas contractual investments
totaling $1.5 billion in the past five years,
and income from the medical
industry’s exports reaching 2.6 times the amount
five years ago, according to
Zheng Xiaoyu, director of the State Pharmaceutical
Administration
(moftec.gov). The pharmaceutical market’s growth is another
example of the
economic progress China has made. Even after accounting for all
the economic
benefits recognized by the world, the Chinese still come out as the
country
with the most gains. However, there are more motives behind China’s
market
reforms than just purely economic. On the political front, China is
fast
becoming an integral part of international organizations. The government
is
making a conscious effort to reenter GATT (General Agreement on Tariffs
and
Trade), realizing the importance of creating a favorable trading
status among
foreign nations. Slowing this progress, the 124 nations strong
trade bloc has
requested that numerous conditions must be met by China before
the nation can
become a member of GATT once again. Several of these
provisions are the
"elimination of import prohibitions, restrictive licensing
requirements and
other controls or restrictions; lifting of all restrictions
on access to foreign
exchange and full convertibility of the Chinese
currency" (fmprc.gov).
Other important key themes behind China’s Open
Door policies are
"economic and technological cooperation with the West"
(fmprc.gov) and
that China’s government no longer supports Third World
revolution. Instead,
China realizes that cooperation with developing
countries would be far more
practical. Although Chinese foreign policies is
aimed at opening the nation’s
economy to the world, it neglects the
agricultural market almost entirely, with
the exception of technical
contracts. These contracts are designed to improve
the transfer of
technologies to improve crop yields. "Technical Contracts
are made between
farmers and village economic cooperatives and a wide variety of
offices and
technical personnel from different administrative levels"
(fmprc.gov).
The funding for the technology used by the agricultural
industry can be traced
to extension stations of political parties, finance
bureaus, or local insurance
company. Since the groups funding technical
contracts are nothing more than
investors, a portion of the profits from
increased production due to the
technological advancements are returned to
these groups. However, the technology
providers also bear the risk of
investors, "if output and economic returns
can’t reach prescribed figures,
the extension administrations have to make up
the losses"(fmprc.gov). Like
all good things, China’s formidable economic
growth had its downsides. There
are a few detriments like inflation, an
under-aided agricultural market,
government inefficiency, and geographically
uneven development. High
inflation, caused by a demand for more exchange medium
on the Chinese market
is causing Chinese currency to depreciate relative to
other national
currencies. Currency conversions and management remains a
sticking point for
many businesses wishing to invest in China. There has been
some movement in
Asia toward a more uniform level of currency exchange, but not
so much that
it has affected the difficulties in trading with China. And, a lack
of
emphasis on the agricultural market is causing that sector of the
Chinese
economy to fall behind, and soon the supply of agricultural products
will fall
below the demand for these goods, resulting in a shortage. Another
problem is
also the inefficiency of large, state-owned production facilities
can be
explained by excess bureaucratic red tape and corruption. Finally,
there has
been an uneven distribution of development between the land-licked,
western
section of China and the industrialized east-coast, consequently
causing
ineffective land use. A lot of China’s economic problems seem to be
internal,
and connected with supporting the massive population while
divesting the
government of money-losing businesses. Indicative of the
overall industrial
health of China is the amount of tax the country collected
through their
industrial and commercial tax in August, 1997. The total
collected was $6.5
billion-a 12.9 percent increase over the same period in
1996. Included in the
overall tax is a business tax, which grew by 49.5
percent in August, 1997 alone.
There are hundreds of American businesses
wanting to take advantage of the
growth of China’s business sector. Several
US- based, multinational companies
already have entered the Chinese market,
and now the smaller entrepreneurs would
like to be included, too. One of the
keys to this movement is that China now
claims an emerging middle class, most
of which wants American goods (Cross 25).
US-China trade has increased by
fully 90 percent since 1990, reaching $64
billion in 1996. Before Hong Kong
reverted to Chinese ownership and rule, US
businesses used Hong Kong agents
to negotiate with the Chinese government. Now,
however, Hong Kong is the
international administrative arm of the Chinese
government (Barnathan 30).
Such negotiations are less certain and requires
either the services of an
international trade consultant, or at the very least,
more than a passing
glance at US government-generated "tips" on doing
business in China (Cross
25). Jiang announced "that the unorthodox brand of
market-driven socialism
that has propelled China this far needs a radical
overhaul. In one of the
most sweeping sets of policy changes since the late Deng
Xiaoping
unleashed the forces of modernization in 1978, Jiang announced that the
state
sector is in for a wrenching downsizing" (Clifford et al.). Of
course, his
plan to restructure carries with it the risk of opposition among
the
worker’s, particularly those that will be left to fend for
themselves.
Historically, each governmental liberalization of the past
has resulted in a
wave of capitalistic activity. Market driven socialism and
totally free markets
are two very different entities, and the Chinese
government is faced with
decisions of how much control they will levy on a
freer market system.
"Indeed, Jiang’s plan is so sweeping that it could
unleash perhaps the
largest wave of corporate restructuring, mergers, and
acquisitions the world has
ever seen" (Clifford et al.). Certainly, China is
poised to become the
world’s next economic super power. Their success in
attaining that status will
depend largely on how they collectively deal with
their existing and future
economic issues, however. China recognizes the
necessity of radical changes in
some of their current practices, most notably
the ownership and operation of
state enterprises.