The impact of globalisation on China

Globalisation, is the process of increasing integration among different countries, resulting in the establishment of a single world market. Globalisation has been accelerated in the last 50 years due to the relative stabilisation of international relations, development of international institutions that have assisted in the management of globalisation, technological developments and changes in domestic policy.

China has been heavily impacted by the process of globalisation displayed through: economic growth, international convergence, economic development and quality of life, international trade, investment, financial markets, distribution of income, the environment and Chinese government economic policy. In this essay I will be especially focussing on how globalisation has impacted economic development and the environmental consequences of globalisation. China is the largest country in terms of population size and has recently become the second largest economy in PPP US$ terms.

China has made rapid progress in economic and human development by reforming its economy. Between 1978 and 1997, the Chinese government made vast changes allowing its economy to become more efficient and opening up its doors to the global market to reap the benefits globalisation. China’s recent high growth performance has led to rapid economic development. China sustained an average annual rate of growth in real GDP of 10. 1% between 2003 and 2009. Investment and international trade have been the source of China’s industrialisation and consequently its rapid growth.

This economic growth has lead to economic development with its citizens enjoying rising per capita incomes, growing by an average of 8. 2% per annum between 1975 and 2005, and improvements in quality of life, rising from a HDI of 0. 530 in 1975 to 0. 777 in 2005. The World Bank estimates that over the last 25 year poverty has been reduced by 400 million people in china, previously living on $1 US dollar a day.

China’s export orientated strategy financed by direct foreign investment has doubled the size of the Chinese economy in the decades of 1980s and 90s. This has resulted in rising real incomes and significant improvements in material indicators and non material indicators of development for much of China’s population. Due to the structural changes implemented since 1978 within the economy, the Chinese population’s life expectancy, GDP per capita and adult literacy levels and HDI value have all risen significantly. China’s high levels of economic growth can be attributed to “international convergence”, a key impact of globalisation.

The Chinese economy has moved from being a planned economy to a market economy, an agricultural economy to an industrialised economy, a rural based society to an urban based society and has developed an outward trade focus capturing the benefits of globalisation. Because of these economic developments china is now a major contributor to global output, growth, trade and investment. China’s international trade has increased considerably in the recent decades due restructuring of the economy and the reduction of trade barriers.

These economic developments have allowed China’s exports have grown on average by 17% per year since 1978. This has been predominantly due to Western companies that have set up Multination corporations (MNCs) in China which account for a massive 54% of China’s total exports. The value of China’s exports grew by 30% per annum between 2003 and 2008 and exports now account for 35% of GDP. Much of the growth reflected the expansion in the processing of goods that have been imported from other countries which has become cheep and efficient to do through globalisation breaking down trade barriers between nation.

Foreign direct investment (FDI) in China remains a key driver of Chinese economic growth although capital flows eased during the GFC in 2008-9. Investment in China is mainly based around the secondary and tertiary sectors. Investment in urban areas has also increased significantly due to the rapid increase in urbanisation in China. China attracts record levels of FDI as companies shift production to china to take advantage of the cheap labour market. China’s financial markets are still fairly primitive however China has one of the highest saving rates in the world.

This is Largely due to rising incomes, but also due to the lack of a robust social safety net to protect citizens from changing economic circumstances such as unemployment and population ageing. The banking sector was only opened to foreign competition at the end of 2006. This forced Chinese banks to become strong and efficient so as to compete with the international banks. In making the banks more efficient, state owned enterprises also had to increase their efficiency as they no longer were allowed to take low cost loans that were running at a loss for the state bank.

These economic developments coupled with increased prudential standards and the improvement of lending practices has allowed for savings to be allocated efficiently for investment purposes, to support medium term growth in the Chinese economy. China’s impressive growth performance has not benefited all provinces equally as illustrated through the large geographic disparities in the distribution of income. Coastal areas have consistently experienced the fastest economic growth because they benefit from their proximity to the Special Economic Zones such as Shanghai and Shenzhen, where employment and income opportunities are the greatest.

Moreover the performance of coastal areas sped up in the 1990s, with annual growth averaging 13%, which was five times the level in China’s slowest growing north western regions (e. g. Tibet). China may be one of the few countries in the world performing well overall in the indicators for the Millennium Development Goals however in income, education and health, only some parts of China will achieve these goals, leaving behind the vast inland areas and particularly the western provinces.

China’s high rates of economic growth in the past decades have led to rapid resource use and environment degradation. A Chinese government study suggested that, unless pollution is controlled, by 2020 it will cause 600,000 premature deaths in urban areas and 20m cases of respiratory illnesses. The World Bank estimates that pollution alone costs China approx 10% of China’s annual GDP, in direct damage to the environment, medical costs, lost output from respiratory illnesses, money spent on disaster relief and the implicit costs of the depletion of natural resources.

In fact, in 2005 the endangered and much loved Chinese unicorn became extinct due to deforestation of their natural habitats. The Chinese government has begun to recognise and address the environmental problems that have emerged due to rapid growth and industrialisation. Targets have been set to reduce pollution levels and markets have been established for tradable emission permits which give firms an incentive to keep pollution at a minimum. These economic developments will lead to higher economic growth and improvements in human development and living standards.

Chinese government economic policy since 1978 to today has been a continual process of opening the economy up to market forces and embracing the potential benefits of globalisation. The current government is focusing on continuing economic development and social stability in China. The government has recently begun implemented a more than half a trillion dollar fiscal stimulus package to counter the economic slowdown, boost domestic demand and prevent a rise in poverty.

This economic slowdown of the Chinese economy, triggered by the Global Financial Crisis, and the need for such a large fiscal stimulus package displays how global influences can readily affect globalised economies. Overall China’s economy has been impacted significantly by globalisation. As discussed, without China’s exposure to globalisation it could not have sustained such high levels of growth and economically developed so much in such a short period of time. However the Chinese government’s policy must see much reform before the economic development can reach the levels of developed nations.

For example China’s environmental standards must be addressed as China now has the ten most polluted cities in the world causing premature deaths and millions of respiratory related illnesses. Other such issues that need to be addressed by the Chinese government if they want to continue to enjoy high levels of economic growth include development in infrastructure, commercial laws and regulations, social security reform, reform of the labour market, political instability and ecological sustainability.