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The Concept of Economy

There have been diverse views from various scholars on the meaning of economy. Of this various definitions includes;
Economy is a term derived from the Greek word ‘OIKONOMOS’ which means “One who manages a home”. Even though the term Economy is derived from the Greek word, history has shown that the Babylonians and their neighbouring towns were the first to develop any form of economics as it regards laws and rules.

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According to Wikipedia (2018) “The contemporary concept of the economy wasn’t popularly known until the American Great Depression in the 1930’s”. However, prior to this period, the concept of economy had passed through different phases some of which included; Primary, secondary, Tertiary and Quaternary stage of the economy.

What then is Economy?

Economy as defined in Investing Answers (2018) “Is the organised system of human activity involved in the production, consumption, exchange and the production of goods and services”. It is an organised system where money is made through the production and distribution of goods and services. The Oxford Living Dictionaries (2018) also defined economy as ‘the state of a country or region in terms of production and consumption of goods and services and the supply of money’.

There are diverse ways of measuring the economic activities of any nation. Some of these ways include;

  •  Gross Domestic Products
  • Exchange rate
  • Stock Market
  • Interest Rate
  • Unemployment

CHINA AND ITS ECONOMY

Popularly known as the People’s Republic of China. China was established on January 1, 1912 after the Xinhai Revolution that Qung dynasty era. The country is situated in East Asia and is referred to as the most populated country in the world with an estimated number of 1.404 billion people. In terms of land mass after Russia, China is the second largest country in the world.
In the world in general, there is a popular conception that the Chinese people can be used for cheap labour. However, despite this notion, the country is the largest emerging economy in the world and is mostly engaged in manufacturing, industrial production, servicing and agriculture.

As at 2017, China became the world’s largest economy through its purchasing by making $23.12 trillion in comparison to European Union and the United States of America at Second and Third position respectively.

Despite being the largest economy in the world, China remains a very poor country with regards to standard of living. This low standard of living attracts people and businesses to the country. Most of China’s economic growth is dependent on the exportation of machinery and equipment. Apart from machinery and equipment, other components of China’s economy includes; real estate, infrastructure, ports, railways, pipelines, aluminium, copper, cement, steel, exchange, reserves etc.

In recent time, China has witnessed a slowdown of its economy which resulted to a slower growth in its GDP. Most of the changes that affects economic growth centres on change that has labour, productivity and capital. In the case of China, the decline in its economic growth is attributed to the huge technological gap between China and other rich countries. Another that contributes to decline the economy is an increase in Country’s debt.

CHINA AND THE WORLD’S ECONOMY

There is the doubt that in comparison to the world’s economy, China’s economy is a strong force to reckon with whether or not it is the largest or second largest as measured by GDP. In 2007, from being the sixth economy as at 2002, China was declared the world’s largest economy with a total of $23.12 trillion as against the European Union and U.S respectively. This does not dispute the fact that when considering the per capital income of the average man in China, the country’s populace comprises off relatively poor people or that the gradual slowdown in the economy brings with it a lure of fear in the minds of their nations.

According to Gutte Wallin Pederson (2002) ‘China’s growth has primarily been driven by market oriented reforms and the opening of the Chinese economy to the rest of the world. Other components of China’s economy include manufacturing and production of machineries at low costs, foreign direct investments, exportation, agriculture and importation of things consumed in the country.

China has contributed immensely to the GDP growth of the world. It is quite central to the world’s economic growth. Between 1980 to 2011, China recorded an annual growth of about 10%. A significant thing occurred when China decided to join the World Trade Organization in 2001. This is because along with the accession came China’s pledge to provide fair treatment to WTO members ensuring that their enterprises where given the same treatment as that of the Chinese and vice versa.

Most of China’s economic growth in the world centres on physical capital and human capital. Labour force in China gross rapidly. Countries all over the world regards China’s labour force as cheap as such would rather have them in their employ yet a large populous of the workforce has not been tapped. Apart from having a cheap workforce, cost of living in China is also cheap. This explains why countries now go to China to establish companies in other to access raw materials and lower their cost of manufacturing and production.

For a country like the USA, China still remains the highest manufacturer of toys. China also exports manufactured products such as phones, electronics, clothing, furniture etc. Most countries depend on China for products they consume. Example African Countries.

Despite being the highest exporter of consumer goods all over the world, China is the second largest importer in the world. The country because of its limited natural resources contributes largely to other countries GDP in terms of imports. Most commodities that China imports include; crude oil, petroleum gas, iron ore, lead, copper, palm oil, asphalt etc. For instance, the country’s importation of integrated circuits accounted for about 44% of Malaysian exports for 2016.

China is one of the major players in the arms market. Prior to now, China was one of the importers of conventional arms. However, in recent times, the reverse has become the case with the country being the 5th largest exporter of these arms as ranked in the world. According to China power (2008) “Between 2008 and 2012, China exported $14.4 billion worth of conventional weapons across the globe”.

During this period, most percentage of arm supply made by China went to Asia and another fraction of Africa. China’s neighbours and some parts of America have not been left out of the arm supply trend. For instance, between the aforementioned years, the country provided arms worth $1.86 billion to Bangladesh which is about 71.9% of Bangladesh arms acquisition during this period (China Power 2018).

As pointed out by Alec Ash (20177) the basic areas which China intends to drive the world economics’ growth and reforms are;

  • a. Innovation-driven economy, tapping the potential of businesses both big and small.
  • b. One belt, one road initiative, connecting trade markets across Eurasian land and sea.
  • c. A rising middle class, growing in number spending power to drive consumption.
  • d. Financial market liberation, speeding improvements in the Chinese market.
  • e. State-Owned enterprises, opening biggest industries.
  • f. Oversea investment, leveraging Chinese capital to revitalize the global economy.
  • g. China intends to be more involved in the world’s economy irrespective of being a major player already as the country is gradually becoming a consumption driven economy.

Despite being a key player in the world economy, the world itself has witnessed a slowdown in the Chinese economy in recent times. This is because its service sector is suffering from the effects of its workforce population ageing and increase in wages to meet global standards. The use of technology has also declared some job roles obsolete.

Justin Kuepper (2017) opines that “many economists believe the country would have to migrate from manufacturing to services as a primary driver of GDP, just as other developed countries like the United States and those in Europe have done in the past”. There is no doubt that their slowdown will affect economies globally. It may have a deflationary effect on most economies.

For instance, countries that exports goods to China will experience a decline in demand for the goods by China. What this implies is that the decline in demand for goods/services will lead to a drop in their price thus reducing the export GDP of these products. Example the demand for crude oil has reduced thus leading to a decline in price of crude oil.

These days, China goes to the extent of rendering services in exchange for free crude oil. China’s demand for these products will be slow. Other factors contributing to these slowdown include a rise in debt and gradual close of technological gap between China and other countries thus reducing the demand for Chinese products and reducing its productivity growth.

Irrespective of what the effects of this slowdown may imply there is a need for countries to brace themselves for the challenges that lie ahead of them globally. Some of the way they can handle ways situation include, reduction of commodity exposure, diversification of investment hedge with puts on Chinese EIF’s (Justin Kuepper 2017).

IMPACT OF CHINA ECONOMY ON NIGERIAN ECONOMY

Relating the impact of China economy to Nigeria, it will not be misleading to say that her impact on the Nigerian economy is quite enormous. It will not be undermining to say that Nigeria is one country that’s hugely dependent on China. Most products used in Nigeria are tagged with “Made in China” labels that ranges from toys, to plastics, household items, machineries, electronics, clothing etc. Nigeria is also dependent on China for some raw materials.Nigerians also negotiate with the Chinese for customized products only for the Nigerian market.

In recent times, the Nigerian economy has experienced an advancement in industrialization. This advancement has encourage the production of locally made products and reduced the country’s dependence on goods from other countries in terms of economic boost, the country’s bilateral ties with other countries of which China is inclusive has also brought about an increase in foreign investment.

Nigeria continually comes up with policies that do not only aim at strengthening its bilateral ties but are also targeted at ensuring it is exposed to a wide range of options as regards to the quantity and quality of goods consumed by its citizens in process bring about a reduction in the poverty level. Some of this policies includes; Structural Adjustment package, Trade liberation Policy.

The question to be asked is “Do these policies really help in giving the country trade advantage in the long run?” The major factor contradictory to Nigeria/China bilateral ties is labour force. The Nigerian policies as enticing as they may seem may only suffice for the country’s immediate needs. There is little or no transfer of technological knowledge due to language and cultural constraints, Nigerian institutions are not accountable, transparent or credible in their dealings.

Despite the above limiting factor on the part of Nigeria, China have been having currency swap dealings with different countries of which Nigeria is partisan.

As stated by the Central Bank of Nigeria (CBN) Governor, Mr Godwin Emefiele, the currency swap agreement is targeted at helping both countries achieve the following;

  • a. Provision of adequate liquidity of local currency for industrialists in both countries,
  • b. Aid manufacturers businesses in China/Nigeria to access funds to import raw materials from both countries,
  • c. Nigerian businesses who impart from China will be protected from the frequent fluctuations and effects of third party currency.
  • d. It will help people in West Africa have access to China’s local currency as Nigeria will be the trade hub in the region for this purpose.

Since the availability of natural resources is limited in China, the aforementioned economic giants depends on Nigeria for Agricultural produce and crude oil. The importation of these goods from Nigeria helps increase its exportation quota in terms of GDP although in recent times, China would rather offer free services to Nigeria in exchange for free crude oil.