China and its emerging market

Etudes

China and its emerging market, on the way to the world leadership ?

Since 2011, China has become the second largest economy in the world by dethroning Japan. This rise is due to a spectacular economic growth going from 7% to 10% in 20 years, and to a very strong commercial dynamism. Indeed, China has for 30 years been the “workshop” of the world. It has produced, at very competitive costs, clothing, toys and household appliances. The low cost of labor has also attracted many foreign investors who have established their subsidiaries in China. Thanks to a surplus trade balance, when exports are higher than imports, China has invested a lot in advanced sectors like IT, aeronautics or pharmaceuticals and has established itself abroad thru investments in Europe and the United States.
Partie 1 : La chine maintenant devenue première puissance économique mondiale devant les USA.
The rapid rise of the Chinese economy began in the late 1970’s. A moderate communist elite then took political power and brought China closer to the market economy. Two years after the death of Mao Zedong in 1976, Deng Xiaoping launched a policy called “reform and opening-up”. It concerned four economical sectors the agriculture, industry, technology and defense. Its purpose was to gradually enter the market economy which China was isolated from. In this framework, from 1978 to 1989, the Chinese government decollectivized their lands, what enabled privatization of the land and induced an increase of agricultural production. Four special economic zones where opened to foreign investors in the southern provinces and then in all coastal towns what further led to an unprecedented industrial growth of the country.
Later on, from 1992 to 2001, China embarked on “market socialism”, which means, the conquest of certain industrial sectors: toy, textile, electronics, thanks to a cheap labor force.
“Socialism with Chinese characteristics” is today characterized above all by an economic orientation that involves great dangers of the restoration of capitalism. A turning point in the reform policy is the year 1992, when China moved from a planned economy with market elements to a market economy, and where it have given free rein to the development of private domestic capital. By moving from a planned economy to a market economy, qualitative steps had been taken in restoring the law of value as a regulator of the economy. That means that the distribution of factors of production, capital and labor is now subjected to the laws of the market. Competition between state-owned companies, between private companies and between state and private companies is to observe. Also a free accumulation of capital and that private capital investments are made, with, as a consequence, an overproduction and chaotic development (for example , in construction, in the iron and steel industry, in the automobile industry).
However, the planned economy is replaced by a market economy with strong state intervention. Directive planning had been replaced by indicative planning which sets the broad guidelines. The state still has a strong arsenal of means to impose these orientations because it still controls the large state-owned companies in the most important sectors, but also the policy and the state budget, as for instance the decision to stimulate demand through the development of social security or raising the minimum wage or because of the indirect influence of the state on certain sectors (for example alternative energies) by a credit policy that favors public companies.
Roughly speaking Chinese economic super cycle begins in the late 1970’s; anticipated spillovers are compared to those of the conquest of the American West at the turn of the 19th century, the major changes and reforms took place until 2001 and the results of the 20 past years start to be observable. In the year 2001, China joined the World Trade Organization and the changes maintain, what we can see thru significant key successes in the coming years. In June 2003 China watered the Three Gorges Dam on the Yangtze River, which is the largest dam in the world; in October 2003 the first Chinese manned space flight was launched; in
November 2004 some of the first free trade agreements were signed between China and 10 other countries in southeast Asia; in August 2005 joint military exercises with Russia took place. 2006 was a very significant year for China, in May the construction of the Three Gorges Dam was completed, in July the Beijing-Lhasa (Tibet) railway line was inaugurated longer than 4,500 km, it puts Lhasa 2 days from Beijing, in November Chinas and Africas Cooperation Forum Summit brings together 48 African countries in Beijing because China doubled its financial assistance to Africa $5 billion are unblocked to encourage Chinese companies to invest in Africa. And most important, in December 2006 China opened its market to foreign banks, in line with the commitments it made when it joined to the WTO in 2001. The next year in 2007, China than became the third largest economy in the world behind Japan and the United States before overtaking Japans second place in 2010.

The Great Recession of 2009-2010 marks the end of the euphoria for China’s economy. The price of raw materials is falling. International trade is declining. As a result, China’s economic growth has been slowing down the last past years since then. For the first time in a quarter century, China’s growth in 2015 according to the GDP is 6.9%, it was 10.6% in 2010, and the tendency is declining with a rate of 6.6% in 2016.
However the Great Recession affected every strong economic country including the economical leader, the USA. Nevertheless, according to the indicator of the gross domestic product at purchasing power parity (GDP-PPP), which is a measure of the economy that for the purpose of a fair comparison, brings for instance the purchase of a coffee in New York or Beijing to the same basis, China’s economy managed to overtake the American one in 2014, with an amount of 17.6 trillion US dollars opposed to 17.4 trillion US dollars achieved by the USA. This was published and confirmed by the international Monetary Fund.

For three decades, China is urbanizing by consuming raw materials. It builds massively: bridges, railway networks, roads, etc. During the 1980s, China opened up to international trade. More than a billion Chinese enter the capitalist economy. The labor force available doubles. A huge wave of manufacturing relocation is sweeping. In 2001, China finalizes its “controlled market economy entrance” and meets its commitments agreed when it joined the WTO. In 2009, China dethroned Germany, becoming the world’s largest exporter. China’s average annual growth rate is an impressive 9.8%. Between 2000 and 2010, the size of the Chinese economy has more than doubled, an unprecedented economic explosion took place. And since 2014 China even dominates the global economy.
China seems to be on a good way to become world leader, but still, dominating the global economy isn’t sufficient to be qualified as the world leading country or the world’s most powerful one. We must begin by defining what power really is for a country. The term power refers to the notion of power, that is to say what will be the capabilities of a country or organization on a territorial, demographic, economic, political, military or cultural level. Based on these criteria, it will then be possible to “categorize” countries. It is therefore necessary to prioritize these different power levels. We can thus speak of hyper power or superpower, average power, emerging power or underdeveloped power. Overall we can identify seven criteria for this purpose :
Territorial control is the essential element of power. Indeed, it is thanks to its good management that a country will be able to develop. The territory must be controlled, occupy it at the level of population, infrastructure, and politics. The territory is synonymous with resources that must be used wisely. It is also necessary to take into account the climate, the relief, the richness of the grounds. Geographical position is very important for the development of the economy. An open territory on the seas and oceans is an advantage for the trade. There must also be proximity to other countries.
A large population which means a populated, diverse, organized one. A large population offers advantages, but you have to know how to manage and organize it. Indeed, many heavily populated countries today are not very influential. We must also add the nuance that a small population does not hinder some countries from asserting themselves as important in the world. We must therefore emphasize the importance of education, which makes it possible to train responsible citizens who are inclined to pursue the dynamics of their country.
A good economy, openness to markets, presence in international trade, tourism for instance. Economic power depends on the country’s place in trade. In fact, economic relations between countries make it possible to promote trade and creation of wealth . That is why alliances and agreements between countries have been made since the post-war period. There are strategic geographical alliances (EU, NAFTA, ASEAN, MERCOSUR) but also purely strategic alliances (partnerships with emerging countries, particularly in South East Asia). It is also necessary to take into account the propensity for a country to invest abroad, to welcome foreign investors, which allows synergies. The economic power also depends on its power in-house (agriculture, high-tech industry, development of the tertiary sector, etc…).
Politics and conquest of the global space. The most powerful countries at present are the countries that play a vital role in international organizations such as the UN or NATO.
NATO is a politico-military organization that brings together many Western countries whose primary purpose is to ensure their common defense against external threats as well as the stability of European and North American continents or sub-continents.
The military and the defense through nuclear power, armed forces deployed worldwide.
The military force of a country is one of the most important power criteria. It includes the possession of the nuclear weapon (nuclear dissuasion), the ability of an army to intervene in conflicts around the world, the possession of a massive and modern weapon (drones for example or lasted technology weapons). The goal is to protect its population but also to try to resolve conflicts in dangerous areas.
The exploitation of its resources, here we are talking here about natural, demographical and technological resources. Nowadays, the oil-producing countries are experiencing a very important growth since this resource is the most coveted. In nuance, highly populated countries such as China and India in particular are growing strongly since they have a very strong workforce that enables high volumes of production. On the technological level, the most developed countries make of the research an important element. Research and innovation create new processes and products and are the essence of more effective management.
And finally the sociocultural influence which asses if a country plays a role of model it source of inspiration for other populations. This is often qualified as “Soft power”.