Beruflich Dokumente
Kultur Dokumente
By
LUC M. BERLIN-UNKAP
March 5, 2011
Abstract
Not many people would have accepted the now fact that China’s Gross Domestic
Product (GDP) would grow to become the 2nd largest of the world, eclipsing longtime
holder Japan. Since the introduction of economic reforms in 1979, China has
become the world’s fastest-growing economy. Moreover, the Chinese government
has made strategic investments both economically and socially to ensure its
relevance in the business world. Will China’s economy keep its trend and propel the
country to the top of the world economy echelon? This research paper examines and
evaluates the sustainability of China’s current economic conditions to see how they
shape its future.
Preface
Not many people would have accepted the now fact that China’s Gross Domestic
Product (GDP) would grow to become the 2nd largest of the world, eclipsing longtime
holder Japan – at least not so fast. Since the introduction of economic reforms in
1979, China has become one of the world’s fastest-growing economies. From 1979
to 2005 China’s real GDP grew at an average annual rate of 9.6%.1 Over the past
decades, China has quickly risen from a developing country to a global economic
powerhouse – sprinting past every other Western economy, with the U.S. as the only
exception. An online survey of over 723 economic researchers around the globe
undertaken by Fast Future and Global Futures and Foresight (GFF) yielded the
- 34% believe it will grow at over 8% between 2011-2020 – and 72% believe it
- 38% believe China’s GDP will have overtaken that of the USA by 2025 and
- 78% of respondents believe that the Chinese stock markets will overtake the
New York Stock Exchange in size – 56% think the milestone will be reached by
2040
1 Morrison, W. (2006). CRS Issue Brief for Congress. China’s Economic Conditions. Downloaded PDF
on Mar 3, 2011 from www.fas.org/sgp/crs/row/IB98014.pdf
2 Talwar, R. (2007). The Future of China’s Economy: The Path to 2020 – Opportunities, Challenges
These findings seem to affirm a growing consensus that China’s reign as the largest
economy in the world is no longer a matter of if or when but how soon. However,
many people still believe that the U.S. will retain its crown as the world’s economic
superpower. In his book “The Next Hundred Million: America in 2050,” Joel Kotkin, a
growth based on fertility rates and immigration pattern will increase the U.S.
population today by roughly 100 million.3 Kotkin argues that this population growth
will be a blessing to American prosperity and eventually help the U.S. maintain its
edge on China.
Will China’s economy keep its trend and become the number one economic power in
the world or will the United States, fueled by a boost in populace as Kotkin predicts,
remain the global economic superpower? To help answer this question, I will start by
looking at China’s economic history and how it has influenced present days.
Following the same approach, I will examine and evaluate the sustainability of
current economic conditions to see how they shape China’s economic future.
Economic Past
Once an economic superpower, China’s economic, cultural and technological
superiority decline began when in 1433 emperor Xuan De stopped foreign trade and
3Levingston, S. Washington Post. China is Not Likely to Surpass United States as Global Economic
Superpower, New Book Predicts. Retrieved on Mar 5, 2011 from http://voices.washingtonpost.com
construction of big naval vessels.4 Isolated from the rest of the world, China began a
cycle of decay that lasted until the late 1970s at the end of Mao Zedong’s Cultural
Revolution.5
Prior to 1979, a central goal of the Chinese government was to make China’s
command, economy.6 A large share of the country’s economic output was directed
and controlled by the sate, which set production goals, controlled prices, and
allocated resources throughout most of the economy.7 Foreign trade was generally
limited to obtaining only those goods that could not be made or obtained in China.8
Government policies kept the Chinese economy relatively stagnant and inefficient,
mainly because there were few profit incentives for firms and farmers; competition
was virtually nonexistent, and price and production controls caused widespread
government, led by Deng Xiaoping created ownership incentives that allowed farmers
4 EH.net. (2010). Economic History of Pre-Modern China (From 221 BC to c. 1800 AD). Retrieved on
Mar 3, 2011 from http://eh.net/encyclopedia/article/deng.china
5 EH.net. (2010). Economic History of Pre-Modern China (From 221 BC to c. 1800 AD). Retrieved on
four special economic zones along the coast of the purpose of attracting foreign
investment, boosting exports, and importing high technology products into China.
trade incentives, development zones, and the elimination of state price controls.
the farms, China’s economy has grown substantially faster and the country has gone
Lieberthal.11
Source: Morrison, W. (2006). CRS Issue Brief for Congress. China’s Economic Conditions. Downloaded
PDF on Mar 3, 2011 from www.fas.org/sgp/crs/row/IB98014.pdf
10 Morrison, W. (2006). CRS Issue Brief for Congress. China’s Economic Conditions. Downloaded PDF
on Mar 3, 2011 from www.fas.org/sgp/crs/row/IB98014.pdf
11 Talwar, R. (2007). The Future of China’s Economy: The Path to 2020 – Opportunities, Challenges
domestic consumption and low cost labor are currently seen as the biggest drivers of
growth, with bureaucracy and corruption perceived as the most significant growth
barriers.12 Critical concerns have been raised about human rights, the environment,
freedom of speech, inequality, internal tensions, stresses on the banking system and
the potential for overheating.13 Regardless, one cannot refute the amazing
economical progress China has made, taking 400 million people out of poverty and
The constant flux of large populations of villagers, looking for a more modern
lifestyle, into the cities has given China a large pool of low-cost labor against which
many other countries cannot compete. Only India stands out to be a clear exception.
Indeed, in the GFF and Fast Future online survey, the scale of the market, low cost
labor and China’s growing capacity for innovation were identified as the top 3 factors
12 Talwar, R. (2007). The Future of China’s Economy: The Path to 2020 – Opportunities, Challenges
and Uncertainties. Downloaded PDF on Mar 3, 2011 from
www.stanford.edu/~ljlau/Presentations/Presentations/022800.PDF
13 Ibid.
14 Ibid.
Many companies have shown an interest in the Chinese market but have no direct
experience. Others are concerned by the country’s communistic stance and might be
waiting to see if China shows real signs of evolving into some form of capitalism.
Investment in Education
product (GDP) in 2012, narrowing the gap with the US which education spending
Fig 1.a Education spending as percentage of GDP – Comparing U.S. and China
Source: Environmental Scan. (2003). OCLC. Worldwide Education and Library Spending. Retrieved on
Mar 3, 2011 from http://www.oclc.org
15 Environmental Scan. (2003). OCLC. Worldwide Education and Library Spending. Retrieved on Mar
3, 2011 from http://www.oclc.org
The Chinese government’s National Outline for Medium and Long Term Educational
Reform addresses almost all major issues from the education system and the quality
having a significant role in driving its economic growth, it would need a well-educated
and highly skilled workforce to maintain it. University enrollment in China has
reportedly risen from under 10% of young people in 1999 to over 21% in 2006.17 As
recently as 1996, China produced just 5,000 PhD students a year. That was only
about half the number in the UK, Japan or India. Since then, China has overtaken
every other country in the world except the US in terms of the numbers of doctoral
degrees awarded.18 However, the dilemma that China faces is that many of their
dean of social sciences and professor of geography at the University of California, Los
issue in China. A large number of young people have little other than materialism and
socialist ideology lost its grip. Not having a job is a perfect recipe for social unrest.”19
picking up its pace and is well on its way to leading the world. The U.S. is poised to
16 Jia, C. (2010). China Daily. Government to Increase Spending on Education. Retrieved on Mar 3,
2011 from http://www.chinadaily.com.
17 Baker, M. (2007). BBC News. China’s Bid for World Domination. Retrieved on Mar 5, 2011 from
http://news.bbc.co.uk/2/hi/uk_news/education/7098561.stm
18 Ibid.
19 The New York Times. (2010). Educated and Fearing the Future in China. Retrieved on Mar 3, 2011
from http://roomfordebate.blogs.nytimes.com
relinquish its crown as the world’s biggest manufacturing crown by output to China by
the end of 2011.20 In 2009 the US created 19.9 percent of the world’s
manufacturing output, compared with 18.6 percent for China.21 The major driver in
China’s manufacturing prowess is its large pool of cheap labor. China’s poor human
rights record, corruption and relaxed environmental regulations are also seen as
sustainable and renewable energies, high technologies, which will only reinforce its
position.
Along with manufacturing, China’s export shows no sign of slowing down. China’s
foreign trade maintained its powerful growth momentum in 2010, as the country’s
overall trade volume reached 2.97 trillion U.S. dollars, a 34.7 percent increase year
over year.22 Of the total trade, exports accounted for US$1.58 trillion, growing 31.3
percent, while imports made up nearly US$1.40 trillion, rising 38.7 percent over
2009.23 China's trade surplus last year hit US $183.1 billion, down 6.4% from
2009.24 The Chinese Customs Administration said on its website that China’s trade
surplus is on a continuous decline in the past few years, which proves that the
statistics in 2011 are keeping with the trend of 2010. According to news from the
20 Marsh, P. (2010). Financial Times. U.S. Manufacturing Crown Slips. Retrieved on Mar 3, 2011 from
http://www.ft.com
21 Ibid.
22 People’s Daily Online. (2011). People’s Daily. China Trade Hits $2.97 trillion in 2010, rising 34.7%.
Manufacturing and foreign trade will continue to play significant roles in shaping
China’s economic future. The trade surplus will continue to decrease as China’s
expands.
understand that a country’s economic prosperity is built on the back of the middle
class, much like the United States in the 1940s and 1950s. Therefore, it is no
coincidence that the growth in China’s GDP mirrors the growth of its middle class,
which according to a report by the McKinsey Global Institute, will reach 612 million by
overall economic growth moderates, according to the report, incomes in urban areas
will rise faster than GDP because of higher labor productivity and rising education
levels.28 The growth of the Chinese middle class will also be driven by the country’s
and highly skilled Chinese middle class will emerge as a driver and sustainer of the
26 Jun, L. (2011). People’s Daily. China’s Foreign Trade Up 44 percent in January. Retrieved on Mar 3,
2011 from http://english.peopledaily.com
27 Wang, H. (2010). Growth of China’s Middle Class. Retrieved on Mar 3, 2011 from
http://helenhwang.net
28 Ibid.
29 Ibid.
Economic Future: Opportunities and Long-Term
Challenges
Opportunities
Based strictly on present conditions, China’s economic future looks very promising.
The country’s GDP is growing at astonishing rates, millions of people are being lifted
out of poverty, unemployment is low, the middle class is expanding, the government’s
double-digits growth, and the doors have been opened to foreign investors. Going
back to the survey undertaken by GFF and Fast Future, 37% of respondents thought
One question amidst the mouths of many economists is: Will China fully adopt a
Capitalist economic model? Many people seem to believe that China will introduce a
new economic model – a sort of hybrid between communism and capitalism. The
answer to this question will certainly play a role in the future economic picture of
China. I personally believe that the Chinese government is not ready to give up its
reins on the people and will not adopt a purely capitalist economic model. That said,
China has seen and tasted the benefits of a free-market system and will be willing to
ride that wave as long as it promotes economic fortune but does not interfere with
China’s economic success will also be driven by foreign investors and businesses
seeking to tap in the increasing purchasing power of the Chinese people. Similar, to
what we saw here in the United States, this new middle class is anxious to throw
away the rags and live in riches. This Western, mostly American, influence of heavily
consumer-driven markets at the expense of savings could propel China into even
faster economic growth; but not without bringing a few problems that the American
Fig 1.b Survey results of when U.S. and European workers will be more commonly
employed by Chinese-owned companies
Source: Talwar, R. (2007). The Future of China’s Economy: The Path to 2020 – Opportunities,
Challenges and Uncertainties. Downloaded PDF on Mar 3, 2011 from
www.stanford.edu/~ljlau/Presentations/Presentations/022800.PDF
As the Chinese market place grows, it will play an increasingly important role in
influencing the way Western businesses operate. American and European companies
will evolve and adopt new paradigms to cater to the Chinese population. We will most
organizations.
Fig 1.c Survey results of the impact of the Chinese marketplace on Western
business operations
Source: Talwar, R. (2007). The Future of China’s Economy: The Path to 2020 – Opportunities,
Challenges and Uncertainties. Downloaded PDF on Mar 3, 2011 from
www.stanford.edu/~ljlau/Presentations/Presentations/022800.PDF
Long-Term Challenges
China’s economy has shown remarkable economic growth over the past several
years and many economists project that it will enjoy fairly healthy growth in the near
future.30 However, China still faces several reforms it needs to implement before it
can enjoy the full potential of its economy. According to Wayne Morrison’s Brief on
30Morrison, W. (2006). CRS Issue Brief for Congress. China’s Economic Conditions. Downloaded PDF
on Mar 3, 2011 from www.fas.org/sgp/crs/row/IB98014.pdf
China’s Economic Conditions to the U.S. Congress, failure to implement the following
half are believed to lose money and must be supported by subsidies, mainly
through state banks. The subsidies divert resources away from potentially
- The banking system faces several major difficulties due to its financial
sets interest rates and attempts to allocate credit to certain Chinese firms.
Corruption poses another problem for China’s banking system because loans
are often made on the basis of political connections. This system promotes
government reported that there were over 74,000 protests (many of which
became violent) involving 3.8 million people in 2004 (up from 53,000
31Morrison, W. (2006). CRS Issue Brief for Congress. China’s Economic Conditions. Downloaded PDF
on Mar 3, 2011 from www.fas.org/sgp/crs/row/IB98014.pdf
United Nations report stated that the income gap between the urban and rural
areas was among the highest in the world and warned that this gap threatens
social stability. The report urged China to take greater steps to improve
conditions for the rural poor, and bolster education, health care, and the
- The lack of the rule of law in China has led to widespread government
many cases, government “connections,” not market forces, are the main
Conclusion
Since 1979, China’s economic growth has surpassed any other nations and I believe
the country is well on its way to become the world economic superpower. China has
strategically invested both domestically and abroad to pave its way into the number
one spot. For example, the rising ownership of U.S. government debt gives the
Chinese government great leverage on economic and political matters. Along this
line, China has achieved numerous milestones such as the world’s largest
technological innovation, the second nation with the highest number of doctorates,
whether or not China eventually overtakes the United States as the world’s largest
economy, China is and will remain an economic power that will continually shape the
world.
Reference
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Downloaded PDF on Mar 3, 2011 from www.fas.org/sgp/crs/row/IB98014.pdf
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Challenges and Uncertainties. Downloaded PDF on Mar 3, 2011 from
www.stanford.edu/~ljlau/Presentations/Presentations/022800.PDF
The New York Times. (2010). Educated and Fearing the Future in China. Retrieved on
Mar 3, 2011 from http://roomfordebate.blogs.nytimes.com
Wang, H. (2010). Growth of China’s Middle Class. Retrieved on Mar 3, 2011 from
http://helenhwang.net