Word Count: 3,674

Sections
Introduction, Economic Growth
Economic Development
Trade
Investment
Currency
International Organisation
Inflation
Unemployment
Environmental Sustainability
Concerns
Conclusion
Bibliography

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5
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Introduction
Globalisation is the process of increasing integration between different
countries and economies resulting in the establishment of a single world
market and the increased impact of international influences on all aspects of
life and economic activity. Globalisation refers to the increasing
interdependence of world economies as a result of the growing scale of
cross-border trade of commodities and services, flow of international capital
and wide and rapid spread of technologies. It is the driving force behind
economic growth and development.

(Figure 1) China and its neighbouring countries

China (People's Republic of China) is situated in Eastern Asia, bounded by the
Pacific in the east (Figure 1). The third largest country in the world, next to
Canada and Russia, it has an area of 9.6 million square kilometres , or onefifteenth of the worlds land mass. Globalisation has had a major impact on
China's economy, transforming it from an unimportant backwater country to
a world power in manufacturing and production. This classifies it as an
emerging economy, forming the commonly known BRIC alongside Brazil,
Russia and India. Emerging economies are known for high levels of economic
growth and rising standards of living. China has been characterized by huge
levels of economic growth and development in the past twenty-five years,
making it the second largest economy in the world with a GDP valued at
$US10.866 trillion. Historically, China has continuously struggled with
numerous challenges, such as reluctance to shift to free market operations
from state control, external stability, corrupt governmental systems, high
levels of inequality and massive environmental sustainability problems.
Economic Growth
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Economic growth is an increase in a country's real level of national output

(value of goods and services produced by every sector of the economy)
which can be caused by an increase in the quality of resources, increase in
the quantity of resources & improvements in technology. Economic growth is
commonly measured by Gross Domestic Product (GDP), of which China has a
latest recording of $US10.866 trillion (Figure 2), making it the second largest
economy in the world. China's government implemented many changes
leading to the boom of the Chinese economy, including:

Growth in the country's stock of capital assets such as factories,

manufacturing machinery, technological research and development
centres, communications systems etc.
A surge in the labour force size and productivity, with hundreds of
millions of workers becoming available to the global economy for
cheap labour
Market-orientated reforms undertaken in order to raise economic
efficiency
Growth of Trans-National Corporation's due to low cost factors of
production, increasing China's international trade flows and
competition in domestic markets. China has a total of 95 TNC's, the
second largest amount of global 500 companies
The specialisation of private sectors where a comparative advantage
already existed
Re-investment of profits into new industrial activity, allowing capital
deepening. This was one of the most important factors involved in the
success of China as it ensured a continued level of high growth.

Figure 2. China's annual total

GDP
China has consistently produced some of the highest growth rates recorded,
averaging 9.79% from 1989 to 2016. It recorded a yearly growth rate of 6.9%
in 2015, the lowest recorded since 1990, and is forecasted to grow a further
6.5% to 7.0% in 2016 (Figure 3). China growth rates has recently shown signs
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of slowing down, as the initial effects of globalisation slow down and China's
potential area to grow becomes smaller. China now relies on a more stable
economic growth system focused on meeting domestic demand for products
and services for continued growth.

Figure 3. China's yearly growth

rate
The Chinese government have made many polices that have been changed
or impacted by the onset of globalisation. China is ruled by a communist
government and as such is state owned. However the government has taken
steps to change their position in line with globalisation. Joining the World
Trade Organisation has impacted on China greatly. Since joining the WTO, as
their 144th member, the regulations of the WTO have become those of the
Chinese to increase economic development. This caused high short-term
unemployment and structural unemployment for some industries in the
domestic market. The Government also set up SEZ. Special Economic Zones
were set up in the south and allowed cheaper taxes, less regulation and
cheap labour in return for more trade deals. The changes globalisation has
had on the government has forced it to step back and look at communism
and how they can adapt it to suit the globalisation era.
Economic Development
Economic development is an increase in living standards, improvement in
self-esteem needs and freedom from oppression as well as a greater choice.
The most accurate method of measuring development is the Human
Development Index(HDI) which takes into account the literacy rates & life
expectancy which affect productivity and lead to economic growth. It also
leads to the creation of more opportunities in the sectors of education,
healthcare, employment and the conservation of the environment. Economic
growth is a necessary but not sufficient condition of economic development.
Economic development implies an upward movement of the entire social
system in terms of income, savings and investment along with progressive

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changes in socioeconomic structure of country (institutional and

technological changes).
The most obvious impacts of globalisation on China can be seen by looking
at the quality of life. Since 1950, China's life expectancy has risen from 41
years to 75.8 years in 2016. The literacy rate has increased from 83.5% in
2000 to 95.1% in 2016. Infant mortality rates have dropped from 85 per
1000 births in 1970 to 10.9 per 1000 in 2016 and poverty rates have
decreased from 18.5% in 1993 to 5.2% in 2016, an astonishing margin of
reduction for both. These major strides in economic development have lead
to major strides being made in China's overall HDI, going from 0.502 in 1990
to 0.727 in 2014 and ranking 90th (Figure 4).

Figure 4. China's HDI has increased

linearly
The Five-Year Plans of China are a series of economic development initiatives
instigated by the Chinese Communist Party (CCP) that play a crucial role in
establishing the foundations and principles of communism, mapping
strategies for economic development, setting growth targets and launching
reforms. It first five year plan was developed for 1953-1957 which was
drafted under the direction of the Central Committee of the Communist Party
of China (CPC). The Chinese economy is now in its thirteenth five year
guideline (2016-2020). Its current goals include:

Innovation: Move up in the value chain by abandoning old heavy

industry and building up bases of modern information-intensive
infrastructure
Balancing: Bridge the welfare gaps between countryside and cities by
distributing and managing resources more efficiently
Greening: Develop environmental technology industry, as well as
ecological living and ecological culture
Opening up: Deeper participation in supranational power structures,
more international co-operation

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Sharing: Encourage people of China to share the fruits of economic

growth, so to bridge the existing welfare gaps

Trade
Trade investment is a strong factor in the Chinese economy as it relies on
trade to support it. China imports primary goods, manufactures them, and
then exports the goods back overseas. They are able to do this more
efficiently than other countries due to extremely cheap labour. Exports
increased from $US10.89 billion in 1978 to $US1845.08 billion in 2016, a
17000% increase (Figure 5). This massive increase can be contributed to the
exporting of manufacturing to China. Additionally, China's imports have
grown in proportion to exports, increasing from $US16.8 billion to
$US1425.19 in 2016 (Figure 6). Export form 29.14% of China's economy,
whereas imports formed 28.54%. This massive increase in overall trade has
had enormous benefits for both the global producers and the Chinese
population, providing manufacturers with cheap accessible labour while
increasing the overall standards of livings and decreasing unemployment in
China. China currently enjoys 13.6% of total world trade, the highest
recorded amount since America in 1968.

Figure 5. China's exports

Figure 6. China's imports

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One of biggest benefits of globalisation was the introduction of both foreign

and domestic TNC's (Figure 7). TNCs have had major impacts on China as it
opened the door to the global economy. TNCs have taken advantage of the
cheap labour in China exporting all labour intensive work there. This has
caused the rapid industrialisation in China. TNCs have provided jobs for
many unemployed and have led to the continual Current Account Surplus. In
2016 China has a $US594 Billion Current account surplus. This surplus has
increased rapidly in recent years as more TNCs move to China.

Figure 7. List of countries with

largest amounts of TNCs

Investment
Globalisation has resulted in large amounts of foreign investment flowing
into China, making it the world's largest FDI recipient, surpassing the United
States. The country is also at the top of the 2016-2017 list of the economies
most attractive to multinational companies. The absorption of FDI is part of
the policy of opening China to the outside world. In 2016, FDI followed their
upward trend and increased by 6.4% to reach $US119.06 billion (Figure 8).
According to analyst predictions, FDI outflows from China abroad should soon
overtake FDI inflows into the country, rising 14.1% to $102.9 billion . This
has impacted further upon Chinas economic development in multiple ways.
It has resulted in lower consumer prices due to increased domestic
competition. It has also positively impacted Chinas workers by increasing
employment opportunities and wages. The Chinese government has stated
that it will encourage investment in the following industries or sectors:

High technology
Production of equipment or new materials
The service sector
Recycling
Clean production
The use of renewable energies
environmental protection.

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Figure 8. Total FDI of China

On the other hand, the Government's foreign investment guide has stated
that investments in sectors or Chinese companies that already have a
relatively strong production capacity and use advanced technologies will not
be encouraged. In addition, the government discourages foreign investment
in sectors deemed key to social stability, sectors for which China seeks to
develop domestic firms into globally competitive multinational corporations
and sectors that have historically benefited from State-sanctioned
monopolies or a legacy of State investment. The government also
discourages investments intended to profit from speculation (currency, real
estate, or asset). Moreover, the government has indicated that it plans to
restrict foreign investment in resource-intensive and highly-polluting
industries.
Portfolio investment covers transactions in equity securities and debt
securities. Portfolio equity includes net inflows from equity securities other
than those recorded as direct investment and including shares, stocks,
depository receipts (American or global), and direct purchases of shares in
local stock markets by foreign investors. China's outstanding external
portfolio investment stood at $US286.8 billion at the end of 2015. It was led
by investment of $116.7 billion in the United States, followed by $49.5 billion
in Hong Kong.
Currency
Chinas currency is officially called the renminbi, whereas the Yuan is the unit
of account. The renminbi, denoted RMB, is the name for the currency traded
onshore and offshore. There exists a separation between these two markets,
as China institutes capital controls that prevent the currency from flowing
abroad and vice versa. While the RMB is just one currency, it trades at two

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different exchange rates, depending on where it is traded (onshore or

offshore).
The combination of official interest rates and the traded price of a nations
currency set the monetary conditions within an economy. All other things
equal, when a currency rises against its trading partners or competitors, the
sectors of the economy exposed to that rise lose competitiveness, as its
exports become more expensive. When a currency falls relative to trading
partners and competitors, local businesses who either export or compete
with imports become more competitive. China has in recent years been
manipulating the national currency, keeping it at a daily managed rate, with
allowances for fluctuation 2.1% either way (Figure 9). This has generally
been a tense matter in global affairs and been discussed various times in
numerous summits in the WTO. The Chinese government wish to keep the
currency undervalued for various reasons, including:
A weaker exchange rate makes exports more competitive and
increases demand for Chinese exports.
Chinese economic growth is dependent on exports, so the value of the
currency plays a key role in boosting growth
China needs high growth. Chinas economic growth is remarkable high
by global standards. But, because of the switch from a state controlled
industry to free market economy, there is still a problem of
unemployment. Growth in exporting manufacturing industries plays a
key role in creating jobs that are being lost in agriculture and other
privatized state owned industries.
Despite the benefits of a weak currency, it also causes problems for the
Chinese economy such as:
A weak currency creates inflationary pressure and drives commodity
prices up. Since China is a big importer of commodities, a weaker
exchange rate increases the cost of living and the cost of raw
materials. The government have allowed a small appreciation in the
exchange rate to help mitigate inflationary pressure.
China is seeking to diversify away from dollar assets. To maintain a
weak exchange rate, the Chinese need to keep buying dollar assets,
however, many are worried about holding so much dollar assets given
weakness of US economy. Therefore, China is seeking to diversify away
from US dollar, but, by doing this the exchange rate will appreciate.

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 Criticism from abroad has also become common especially within

developed regions such as USA and EU. Chine has always maintained a
strict manner on external affairs, but with the US being the largest
importer of Chinese goods, it is in the interest of China to have a
strong US economy.

Figure 9. China's
exchange rate
International Organisations
Chinese attitude towards international organizations has evolved significantly
in the last decades. Chinese international organizational behaviour towards
important global issues has varied from symbolic to substantive in various
phases of its involvement in major international organizations. Analysing the
evolution of Chinas interaction with major international organizations and
how this interaction affected both Chinas political conduct and the
institutional norms and policies is key to understanding the effect
globalisation have had on China. China is involved in a number of
International organisations, most notably the United Nations (UN), the World
Trade Organisation (WTO), the International Monetary Fund (IMF), the World
Bank (WB), Association of South East Asia Nations (ASEAN), and Asian-Pacific
Economic Cooperation (APEC) (Figure 10).
The potential of positive Chinese socialization within the global community of
states in areas such as human rights, environmental protection and global
peace were indicated by the UN as the main arguments for Chinas
membership. China is one of the five permanent members of the UN Security
Council, alongside USA, Britain, France and Russia. This membership marked
their ascension to the status as one of the world's most important and
powerful countries.
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China's accession into the WTO in 2001 was one of the most impactful in
terms of globalisation. It signified China's mindset on economic integration
and willingness to comply with globalisation standards. The WTO community
has played a significant role in shaping Chinas behaviour. In terms of
strengthening economic ties, China has proven to be a substantive actor in
the WTO. Nevertheless, in terms of administrative and legal policies, Chinas
behaviour remains mostly symbolic as it lacks transparency and often acts
out of accord.
In opposition to Chinas position in the UN, and the WTO, China appears to
engage as an advocate of the developing world less substantively in the IMF
and the WB. This contrasting attitude appears to at least partly originate in
the competition for loans in which China frequently succeeded to gain the
largest share at the expense of other emerging countries. Chinas
compliance with the WB and the IMF often remains limited to advocacy of its
own financial interests, while trying to limit its obligations. Still, it appears
that even without its usual diplomacy of a developing world representative,
China succeeded in gaining substantial authority within both institutions.
In case of the approach towards ASEAN, Chinas behavior appears
predominantly motivated not by the interactions within the international
environment but by economic security considerations reacting to ASEANs
rising economic power, promotion of Chinas peaceful image and elimination
of Japanese and American competition in the region. Despite not being a
core ASEAN nation, China appears to be pushed by strategic reasoning to be
active toward this regional organization. Chinas initiation of the ChinaASEAN Free Trade Agreement and its fast track proceedings stimulated by
early tariff reductions probably present one of the most persuasive
arguments for Chinas substantive behavior toward ASEAN. China offered
ASEAN favourable conditions which the states would likely not receive from
Japan or the USA.
As the highest-level trade integration forum in the region, containing
members from all areas of the world except Africa and Western Europe, APEC
is a key area of diplomacy and cooperation for China. APEC is a crucial
channel for China's participation in the process of world economic
globalisation and regional economic integration. Although APEC is a trade
forum, thus non binding on member countries, the cooperation in between
the members has allowed significant progress to be made in the interest if all
involved. China's policy within APEC recognises diversity and stresses on the
principles of voluntarism, flexibility, gradualism and, above all, cooperation
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Figure 10.
Inflation
Inflation is the rate at which the general level of prices for goods and
services is rising and, consequently, the purchasing power of currency is
falling. Central banks attempt to limit inflation, and avoid deflation, in order
to keep the economy running smoothly. In China, the most important
components of the CPI basket are Food (31.8% of total weight) and
Residence (17.2%). Recreation, Education and Culture Articles account for
13.8%; Transportation and Communication for 10%, Healthcare and Personal
Articles for 9.6%, Clothing for 8.5%; Households Facilities, Articles and
Services for 5.6%; Tobacco, Liquor and Articles for the remaining 3.5%. The
CPI basket is reviewed every five years on the basis of household surveys
and changed accordingly to suit the new needs. China has been recently
having an inflation problem, as prices for goods and services rise at
unreasonable rates, food inflation reaching 3.2%. In the past, China would
have overcome inflation distress by increasing imports of commodities but
this strategy is no longer practical as the prices of commodities abroad has
risen. On the other hand, price inflation rose to 2.26% in 2016 from 1.44% in
2015 due to rising prices of energy, raw materials and labour (Figure 11).
This has been pegged back to the manipulation of the of the Chinese
currency, and as such has resulted in greater care and handling from the
monetary policy board.

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Figure 10. China core

inflation rate
Unemployment
Unemployment has never been a problem in China until recently due
massive increases in economic growth and development. However a recent
hidden unemployment crisis has risen, with not a little of that due to the fact
China refuses to release true data on unemployment. China's unemployment
rate has suspiciously remained at a relatively constant 4%, no matter what
business cycle is currently in effect (Figure 11). This has led to many casting
doubt over the reality of this percentage, and some have gone as far as to
speculate that the unemployment rate could be up to 3 times as large.
Regardless of this issue, there is a disparity between the unemployment rate
in rural and urban areas. Surprisingly, there is a higher unemployment rate
within urban areas over rural areas. This is partially affected by China's
continued recovery from GFC, where over 45 million urban migrants moved
back to rural areas after jobs become less available. China has increased its
GDP growth, but the country is continually faced with employment pressure
as there is an estimated 10 million people entering the workforce every year.
The move away from labour intensive industries and introduction of efforts to
upgrade the economy and improve productivity will mean that fewer jobs
opportunities will be created in those industries.

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Figure 11. China's

constant unemployment rate

Environmental Sustainability Concerns

Over the years, Chinas huge and growing population, over 9% annual
growth, history of neglect and adverse geography have resulted in big
environmental issues. China suffers air pollution, deforestation, loss of
grasslands and species, erosion, encroaching desert, acid rain, and dust
storms that engulf cities such as Beijing and can carry far abroad. China is a
home to 16 cities out of the 20 most polluted cities in the world.
Environmental degradation grows and Chinas development is endangered
by it. The costs of cleaning up the environment will continue to grow if
effective action is not taken. Chinas government are aware of the problems
but fail to implement the laws because local governments value short-term
gains in growth and jobs over a cleaner and a safer environment. The Centre
for American Progress has described China's environmental policy as similar
to that of the United States before 1970. That is, the central government
issues fairly strict regulations, but the actual monitoring and enforcement is
largely undertaken by local governments that are more interested in
economic growth. Furthermore, due to the restrictive conduct of China's
undemocratic regime, the environmental work of non-governmental forces,
such as lawyers, journalists, and non-governmental organizations, is severely
hampered.

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Figure 12. CO2

emissions (metric tons per capita)

Figure 13. China's various waste and toxic

chemicals
Conclusion
Over the last two decades, China has been cultivating intensely leading to
rising government revenues, low inflation, and a manageable public deficit.
In the short-term, aside from monetary tightening, the government has taken
administrative steps to control investment. In order to rebalance the
economy, China needs to focus on its social security system and aim to
diminish absolute poverty in rural areas and narrow the income gap between
rural and urban. A transformation to a services-oriented economy seems to
be planned for the future once growth can no longer be stimulated on the
levels seen now.
Overall, the process of globalisation has enhanced the Chinese economy by
making it a more market oriented economy, increasing opportunities for
16 Omead Musa

international trade and investment flows and reducing poverty. However, it

has also resulted in increasing inequality within the country along with
degradation of the natural environment and its reliance on foreign trade
makes it vulnerable to economic conditions in other countries.

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