China’s Role in the World Economy
Over the past decades, the competitiveness of the United States economy has been outstanding because of its capacity for innovation, higher education system, market size in terms of labor and product markets, and flexible capital markets. These advantages have allowed U. S.
industries to take a leadership role in the global economy, providing products and services demanded worldwide. However, the U. S. economic powerhouse faces expanded global competition.
Economic liberalization throughout the world, skills upgrades in developing countries and massive technological advances mean that the United States faces expanded competition for jobs and investment. The United States’ overall competitive position in the world economy is threatened by uprising developing countries such as BRIC—Brazil, Russia, India, and China.
This paper will focus particularly on China’s role in the world economy. At a time when the U. S. nd other traditional economic powers are weakening, China’s economic power is strengthening, indicating that it will try to find a much more assertive role in shaping the future of the world financial order. China, after all, has one-fifth of the world’s population, or roughly twice the population of the European Union, the United States, and Japan plus a handful of other high income nations. China sees the global downturn as an opportunity and it has the resources to seize the moment.
Although Chinese leaders are struggling with shrinking trade and rising unemployment, China’s economy is still growing faster than those of other major nations. Chinese banks are more stable and the Beijing government is sitting on the largest stockpile of foreign reserves in the world. China’s power has been increasing in recent years as it has surged to become the third biggest economy, after the U. S. and Japan. Since the late ’70s, however, China’s economy has doubled every eight years. In that same period, the U. S. conomy has doubled once.
Today, average Chinese have some ten times the purchasing power they had just a quarter century ago. China’s growth was led by exports and investments in fixed assets, such as factories and roads. China is now a powerful trading nation, and in recent years has been an avid consumer of industrial commodities such as copper, iron ore, and steel to fuel its rapid industrialization. Additionally, another main driver of Chinese growth was the Beijing Summer Olympics whom people looked to as a defining moment of China’s rise.
China’s run of economic prosperity has been great news for millions of Chinese who have seen their living standards improve, as well as for global trade and the broader world economy. However, with all the foreign investment China is receiving, the country will only grow more and more interdependent upon the world economy. The impressive growth rate of China’s economy is not without its shortcomings. Problems such as inflation and inefficient state-owned enterprises plague the rise of the Chinese economy.
Some of China’s economic problems seem to be internal, and connected with supporting the massive population while divesting the government of money-losing businesses. Its integration into the international economic order poses major difficulties for the rest of the world. These problems include bringing China’s mixed market/centrally planned economy into the GATT, adapting to competition from labor-intensive Chinese exports, encouraging further market-oriented reform, and accommodating its demand for international capital.
But China’s participation in the global economy also offers important opportunities for trade, investment, and international cooperation to promote world prosperity and stability. The average Chinese GDP is still very low, meaning that it is a country with a lot of poverty. Since China has limited natural resources, the incremental increase in demand for these resources will have to come mainly from imports. Demand for energy and for certain other resources will thus grow very rapidly and China will have to expend large amounts of foreign exchange on their purchase, but China will have the oreign exchange required.
And it is also clear that for the developed world, we have to react intelligently and strategically to what China is doing, accepting its aspirations, but also being aware of our own national self interest, and being clear about the ways we can work together. China is a manufacture based economy and is also graduating 350,000 engineers each year, six to seven times more than the U. S. These engineers are joining the manufacturing sector where manufactures now play an important role in response to global demand.
The use of information technology in organizations is inevitable, be it manufacturing. It has contributed largely to the process advancements in countries much like Eastern Asia. Chinese manufacturers, for example, will continue to seek out and perfect the implementation of the latest strategies and technologies in the future. A comparative analysis of the investment patterns of U. S. manufacturers versus China is quite astounding. • U. S. Manufacturing plants spent 3% of sales on capital equipment in 2004 whereas China spent 20%.
• In the U. S. 53% of manufacturing plants were expected to increase their capital-equipment spending in 2005 compared to China at 72%. • IT spending was expected to increase at 42% of U. S. Plants in 2005 whereas in China, 75% of plants were expected to increase their spending on IT. In short, China has a manufacturing base that is, more cost-efficient today and investing more heavily in the capital equipment and IT that will enable it to become more innovative tomorrow. The impact of information technology in global trade is on the rise, as several advancements are focused on to be implemented in various developing countries like China.
American entrepreneurs have pounced on the opportunity of growth in these countries, specifically in China. China is highly populated and is increasing in middle class citizens who have enabled the creation of consumer markets in China. While continuing to grow, entrepreneurs have leaped at the chance to be apart of the business and consumer growth. They learn the Chinese culture, language, and government regulations through their own research and or with the help of locals.
Using the opportunity of unpenetrated markets and low resource and production costs, these entrepreneurs are able to build successful ventures. With high business growth, more Chinese citizens are able to afford purchase of imports and exports. Certainly, China is poised to become the world’s next economic super power and largest trading entity, in terms of inward and outward trading flows. If China would keep growing at this pace its economy would be bigger than the American’s economy by 2030 (Prasad, 2004).
Their success in attaining that status will depend largely on how they collectively deal with their existing and future economic issues. The economy is showing positive changes but still faces very big difficulties. Despite its problems, China’s economy is forecast to grow by at least 5% this year, in stark contrast to many major global economies that are shrinking. But these are speculations about the future. As for the present, China’s emergence is already a major challenge for other developing countries, for Asia, and for the world. That challenge will not diminish anytime soon.