Globalisation is the process of international integration through the exchange of views, products and aspects of culture between nations. It has accelerated rapidly over the past 50 years due to advancements in technology and communication, changes in policies of international governments and increased mobility of labour. The result has been the establishment of a global economy where goods, services, skilled labour and foreign capital are moving faster internationally than ever before. The impacts globalisation can have on an economy have been seen in China over the past 40 years.
Globalisation occurs when domestic economies move from a protectionist economic framework, to an economy that greater embraces the concept of free trade. Protectionism is designed to benefit and promote local manufactures of goods, often through applying tariffs and quotas on imported goods and giving subsides to domestic producers, thus making it hard for international companies to break into the market.
By derestricting imports and promoting exports, a country can utilise the comparative advantage of another country, and focus on specialising in the production of certain goods. The establishment of the World Trade Organisation (WTO) has been a prominent force in breaking down many trade restrictions and freeing up world trade.
Economic development differs from economic growth as it measures the humanitarian quality of life rather than just financial growth. Whereas economic growth is measured in GDP and import/export values, economic development is commonly measured in the Human Development Index (HDI); a United Nation rating that gives a country a score between 0 and 1 based upon factors including life expectancy, education and adult literacy, and purchasing power parity (PPP). It is also often measured by The World bank Development Indicator that works in conjunction with the HDI and measures aspects including pollution, taxation and the distribution of wealth/poverty.
China has epitomized the concept of globalisation over the past 40 years and has seen a rapid shift from a mainly agricultural based economy, to and industrialised manufacturing and export-based economy. In order to embrace globalization and capitalism, China introduced an economic reform program starting in the late 70’s. The program included policies designed to liberalize trade between nations and attract foreign capitol and investment. The Chinese Communist Party launched the “Open door policy” in 1978, which allowed Transnational Corporations (TNCs) to invest and take advantage of China’s thriving labour force and cheap manufacturing costs.
This policy led to the establishment of four Special Economic Zones (SEZs). These geographical areas of land were designed to attract TNC’s and offshore investors to set up manufacturing facilities by offering tax incentives and less regulated economic policies. By having these zones, a socialist political party such as the one in China can maintain strict control of it’s own labour force and their economic rights, while providing the avenue for economic growth and investment.
The zones were a booming success, and by 1985, the total industrial output value of the four zones was 6.14 billion yuan, and increase of over 45% to the previous year. Another 14 SEZs were introduced in 1986 and many other zones specialising in particular manufacturing sectors have since been established.
This manufacturing boom has resulted in phenomenal growth rates, with GDP growth averaging 9.8% since 1989, and is currently sitting at 7.8%. They now export more than any other country in the world, with an export value of 2.1trillion US$ in 2012. One of the key globalisations growth indicators is Foreign Direct Investment growth; the amount of money injected into an economy by Transnational Corporations and offshore investors. In 1990, China’s FDI was just US$19 billion. By 2012 it had grown to US$253 billion, an 18% share of total global FDI.
China’s embrace of globalisation has had both positive and negative impacts on economic development. Many argue that it is wrong of the west to exploit China’s comparative advantage of cheap labour, however in the past 25 years, an extra 400 million Chinese now live above the poverty line. Industrialisation of the economy has provided millions of jobs, thus resulting in a climb in GNI per capita. Since 2004, GNI has grown from around US$1500 to $5680 in 2012.
Although globalisation has had a positive impact on economic development in these ways, its negative impacts are more prominent. Industrialisation and expansion of manufacturing has led to a significant growth in income inequality between the growing middle and upper classes, and the 71.6% of China’s population who still lives on less than US$5 a day. Another rising problem that China is now facing as a result of industrialisation is air pollution.
A study by the Chinese Government found that unless pollution levels are controlled, by 2020 it would cause 600,000 premature deaths and 20 million cases of respiratory illness in urban areas. In response to this, the government set a goal to reduce industrialised related pollution by 30% by 2017
The combination of these factors results in China having an appalling HDI rank of 101st. In order to maintain high levels of economic growth, China needs to find a sustainable balance between economic growth and economic development. The Chinese Government needs to actively use its political power and economic strength to control, stabilise and reduce the environmental impacts associated with globalisation and economic growth. The challenge for china is to also ensure that the benefits of economic growth are distributed through the lower.
The phenomenal growth of Chinas economy is a testimony to the effect globalisation can have on economic growth. Through this process we have seen the establishment and development of a global economy that has allowed domestic economies around the world to flourish. No doubt the process of globalisation will continue exponentially as we continue to innovate and redesign the way economies function within a global market.