Research Paper, Essay on Economics, China's Economic Growth Due to Recent Foreign Policies

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Essay/Term paper: China's economic growth due to recent foreign policies

Essay, term paper, research paper:  Economics

China's Economic Growth Due to Recent Foreign Policies 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. Just a few areas China's government is addressing are agricultural technology, the medical market, and infrastructures, like telecommunications, transportation and the construction industry. Chinese reform measures even anticipated the rush of foreign investment by opening newly expanded industries to out-of-country investors. Effects of this sudden 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, from automobile, to petrochemical, to pharmaceuticals, and optical fiber. 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. 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 and 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 the 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, Erricsson, 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 global 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 (scitech/med 1). 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 Chinese government is making a conscious effort to reenter GATT (the General Agreement on Tariffs and Trade), realizing the importance of creating a favorable trading status among foreign nations. Slowing this progress, the 124 nation 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" (china-tr. 2). Other important key themes behind China's Open-Door policies are "economic and technological cooperation with the West" (china-tr 1) 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 policy is aimed at opening the nation's entire 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" (int12 1). 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" (intl2 2). Like all good things, China's formidable economic growth has its downsides. A few of these detriments are 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. 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 sortage. Another problem is 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-locked, western section of China and the industrialized east-coast, consequently causing ineffective land use. China has quickly become a world leader in trade and will only increase in importance to the global economy. These facts are proven with China's current economic statistics --growing at over nine percent per year-- and economists' projections of the nation's future --China will double its gross domestic product of the year 2000 in the year 2010. The way the Chinese government achieved these impressive economic figures are through a thorough renovation of Chinese trade policies. Reform measures in the country range from reduced trade barriers and technical contracts for agriculture, to infrastructure investment policies and improved standards for pharmaceutical products. However, stemming from China's economic growth are dilemmas such as inflation and uneven development of the country. On a planetary scale, the effects of China's Open-Door policies are best described through a visual representation like the attached graphs. These graphs represent the supply of Chinese goods and services and demand for Chinese products by other countries. As Chinese policies are placed in effect the supply curve shifts to the right because of improved quality standards and higher production capabilities. Open-Door policies also indirectly increase the demand for Chinese goods and services due increased Chinese competitiveness on foreign markets. Works Cited http://www.wissago.uwex.edu/test/joe/1992fall/intl2.html. http://www.china- embassy.org/scitech/med.htm. http://www.chinesebusinessworld.com/business/bgeneral/econ-gen.html. http://www.dfait-maeci.gc.ca/english/geo/asia/china-tr.htm.