Term Paper on "China's Economy"

Term Paper 5 pages (1581 words) Sources: 1+

[EXCERPT] . . . .

China's Economy

China has been in the last decades one of the best examples of constant economic development and growth and the example everyone likes to give when it comes to extraordinary GDP growth rates. At the same time, the propeller for this economic development resides in the adoption of the market socialist system, a third-way approach that combined the usual stern Communist approach with an open market economy. With gradual privatizations (only started in the 1990s, long after the beginning of the market socialism implementation), institutional consolidation and economic reform, China became one of the big players on the global market in the 21st century.

The performances of market socialism in China can best be exemplified with sheer figures: as such, "China's per capita GDP has more than quadrupled," while living standards, especially in the big cities and the coastal regions, have greatly improved since the time that Mao was saying that every Chinese must have his bowl of rice.

Further more, these economic changes did not necessarily bring only local or regional prosperity. The number of people living in absolute poverty has been reduced from 250 million in 1978 to 50 million in 1998 and the trend is still decreasing. This shows that the market socialism measures were conceived so as to increase overall standards of living and to penetrate the Chinese society in the highest degree possible.

The purpose of market socialism in China was to combine the benefits and positive facts of both socialist and market economy. In this sense, it aimed at increasing worker and enterprise productivity by creating a system where workers and employers would be motivated to produce higher results. At the same time, the system proposed in China also opened the country for foreign investors, which meant additional working places, usually at higher rates and more advantageous salaries than those of the former state enterprises.

Market socialism also meant that individuals could now travel and work abroad. From this perspective, Western companies located in Europe or the U.S. would prefer to hire Chinese employees, because of the lower wages they would have to pay. In turn, much of these revenues would be sent back to China for the families still living there and would thus contribute to the GDP increase.

Further more, one can now point to the fact that China has become an economic and financial power with great leverage on the international market. One example is eloquent in this sense: much negotiation has taken place between the United States and China in which the Americans urged the Chinese authorities to allow the Yuan to float freely, thereby diminishing the American financial debts. A strong Yuan greatly affects the American currency and devalues it because of the greater commercial competitiveness that Chinese products thus achieve. China has become, in 2006, the biggest source of imports for the U.S., as well as the biggest source of imports for the European Union.

The market economy part of the market socialism approach also successfully made the Chinese products more competitive on the international markets. Manufactured at lower prices, because of lower production costs, the Chinese products brought a positive current account and an increase in the national reserves. They also allowed foreign investments abroad, notably in the form of American governmental bonds on the U.S. market.

On the other hand, market socialism in China attempted to retain some of the fundamental elements of a socialist model, including free or cheap access to education and health services, overall protection of the Chinese government for its people and other social measures, as well as an overall promotion of an egalitarian society.

The statist control in some areas was beneficial in keeping China out of the turmoil of a global economy. For example, if we consider the financial crisis that struck South-East Asia in 1997, China was only partly and insignificantly hurt by this because the Chinese state had the proper mechanisms by which it could address the immediate problems on the financial market and balance the national currency so that it would not devaluate. All this was done because the state had the right instruments in hand by which it could enforce these measures.

Many voices still support the ideas that, while benefic on a larger scale, market socialism in China also had negative effects at a societal level. First of all, inequality and discrepancies is something that has continued to grow along with the increase in living standards. A this point, according to many statistics, there are over 800 individuals in China with a reported wealth of over $100 million, an increase from around 500 in 2006, while the average income, especially in rural areas of China, still remains somewhere around $500 a year. These discrepancies may lead in the future to social unrest and to political consequences.

This trend is obvious if we compare the differences between rural China, which still represents a significant part of the population, and the urban and coastal areas. Shanghai, for example, is bustling with new businesses and the open economic policies adopted by the government as early as the late 1970s have transformed this city into a regional economic hub, with no difference between it and any of the Western cities at this point in terms of development and economic presence.

On the other hand, inland China remains poor and has not managed to keep the pace with these areas, also because foreign investments, encouraged under the market socialism policy, usually target the industry and the services economic segments rather than agriculture. So far, farmers and peasants have benefited only slightly from market socialism.

Another negative effect of the market socialism politics in China is the impact that this rapid and competitive industrialization process and accelerated economic growth had on the environment. According to different sources, China is now also the biggest source of greenhouse gases, surpassing in an official listing, the United States in that position.

The effects on the global economy as well are quite important, especially if we consider the large consumption of oil, natural gas and coal, aimed at providing energy for the rapid industrialization process. One of the reasons oil prices have gone up to such degree (and are continuing to do so) is related to the growing demand and this also comes from the accelerated increased demand for the Chinese market.

The Chinese economy has surpassed all other economies at a global level in terms of energy consumption and energy demand and this trend is likely to continue. Without proper measures and Chinese participation in agreements aimed at reducing pollution and the greenhouse effect, these type of negative consequences of market socialism and economic expansion are likely to continue in the future as well.

Finally, another important disadvantage of market socialism in China (although the preservation of an entirely Communist system would have not necessarily averted this risk) is the rampant corruption that came out of the foreign and national companies competing for favors from the local Chinese bureaucrats. As mentioned, in a Communist state, corruption is just as present, but there was a growing perception at a population level that letting go of state control amplified the potential corruption within the country.

The market socialism policy in China have brought tremendous change to this country, as well as at a regional and global level over the past 30 years. From a developing country, China is now one of the main economic powers of the world and a force that is taken into consideration when negotiations are made.

However successful and however high the GDP growth rates continued to be, as well as the rising standards of living, the country still experiences some of the classical traits of pure capitalist economies: a certain disparity between the rich and the poor, a decrease… READ MORE

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