How China Has Become the World’s Third Economic Power, Research Paper Example

Over the last two decades China has been experiencing a remarkably high and persistent rate of growth and industrialization and it may well be without precedent in the history of capitalism. China is becoming the center of gravity of world manufacturing. In recent years, China has reached the top five major destinations for foreign investment, thus becoming the center of gravity of world manufacturing and the major target for foreign industrial investment in the world. China has efficiently used communism and capitalism to become the third economic power in the world, thus becoming a growth engine for the imperialist world economy. It is eventually becoming a major force, not only militarily, which it already was, but also economically.

Today China is deeply engaged in the world economy being the world’s largest non-U.S. holder of dollars. China has become a major actor in world currency and financial markets. For example, China holds $1.8 trillion in foreign exchange reserves that come from export earnings as well as from other investment earnings, which can also be considered a store of wealth used as a means of conducting international payments. It can not be argued that China is an exceptional export machine, for the U. S. imports more goods from China than from any other country in the world. Moreover, it appears now that China has surpassed Japan as the world’s largest holder of foreign exchange reserves, which are predominantly kept in dollars invested in United States treasury securities, U.S. government agency debt, and other financial instruments.  China’s dollar holdings have been the main source of substantial financial leverage in the world imperialist economy. The United States has huge government deficits and trade deficits, thus borrowing huge amounts of capital to cover its international financial imbalances. “The United States, China’s largest trading partner, reported a $232.5-billion trade deficit with China in 2006, and this year’s figure was expected to be higher.”(Lee 2007) And, eventually, the U.S. depends on countries like China financing its debt and being involved in competitive struggles for raw materials and energy resources in Africa and elsewhere with the United States and other imperialist governments. “Through June of this year, investments in factories, roads and other real estate projects climbed by 26% from a year earlier. The new construction is soaking up more energy and adding to the pollution that is filling China’s air and waters, and sometimes spreading beyond its borders.”(Lee, 2007)

China tends to be a growing and increasingly assertive geoeconomic force in the contemporary world. “China’s economy grew at an extraordinary rate of 11.9% in the second quarter, the fastest clip in more than 12 years and a pace that puts the nation on track to overtake Germany this year as the world’s third-largest economy.”(Lee, 2007) During the last 35 years, the three giants – United States, Japan and Germany – have occupied the top three in gross domestic product. However, the growth in those mature economies began to slow down and China has accelerated, supported by foreign investments and trade in the middle of a global shift in production to the Far East. Lee (2007) claims that only 12 years ago China’s economy occupied the 8^th place after Brazil and was less than one-third the size of Germany’s. The development of substantially new production complexes in China’s coastal areas, where 80 percent of all foreign investment goes, was generated by the investment of foreign capital in China. At first the foreign capitalists developed the idea that they could force China to open up and then they would flood it with goods. However, China did not develop the way it was expected by the imperialists and emerged in a completely different way, thus becoming a big exporter in a contemporary trade economic environment. “While earlier estimates had put growth of China’s gross domestic product that year at 11.9 percent, revised figures released by the government statistics bureau Wednesday show that its economy actually expanded by 13 percent to $3.38 trillion. That compares with Germany’s 2007 GDP of $3.32 trillion.”(Ariana, 2009) So for now, China definitely ranks higher than Germany and trails only Japan and U.S. as the economic power. Taking into consideration the excessive development of its productive forces, the consolidation of capitalist relations, the huge change in its economy, it is logical that now China tends to behave like an imperialist power. The country is importing raw materials and exporting manufactured goods and capital. Moreover, one of the key elements determining the remarkable increase in the price of oil is the huge demand from China, which has now become the second largest net importer and consumer of oil in the world. China’s relationship with Latin America and the Caribbean emphasizes its imperialistic character. For instance, in 1999 China acquired goods from Latin America and the Caribbean on the amount of $3 billion, and exported $5 dollars’ worth of goods. By the year 2004 China was already exporting about $18 billion dollars worth of goods and its import reached the amount of $22 billion. Even though Latin America predominantly exports food and raw materials to China, the economic giant exports to Latin America textiles, apparel, shoes, machinery, TVs and plastics as well. Consequently, by the year 2004 China has invested $6.32 billion in Latin America, thus putting nearly half of its foreign investment in Latin America and the Caribbean. China is planning to invest an amount of $350 million in Venezuelan oil. They have also set up strategic alliance with Brazil, thus building Chinese owned factories on their territory. China is also trying to set a competition with India for Asian oil resources. Low-cost and low-value manufactured goods, like garments, are the main investments of the foreign capital in China. Moreover, China is considered to be one of the prominent producers of electronics and IT products, thus exporting computers, electronics etc. to the United States. However, the huge part of those exports involves assembly in foreign-owned plants. “China is one of the few major economies that is on track to have positive GDP growth this year. Merrill Lynch calculates that China will have a GDP growth of 8 percent as compared with a 2.8 percent decline for the United States, a 1.3 percent decline for Japan and a 0.6 percent decline for the European Union.”(Ariana, 2009) Even though in 2007 the gap between the GDP growth rates of China and other countries was huge, in 2009 it will be even bigger. However, even if China does achieve a predictable 8 percent growth rate this year, that may be inadequate to stop the wave of company bankruptcies and layoffs that have alarmed China’s leaders.

The China’s bureaucracy does not want to become a victim of imperialist domination. Moreover, they will not let it happen. They realize that they have to maintain a strong capitalist sector, and they are doing that by building up and actually supporting some of the state owned companies, which have vast amounts of capital available. The money is pumped up into the state corporations through state banks. Government interference in the private sector used to be considered as a bad habit of immature economies. However, today things have rapidly changed. China’s economy, which is the only major economy likely to demonstrate any growth this year, is the most closely controlled one. “Despite the precipitous drops in its biggest export markets and the fall in its own stock markets, China’s economy looks likely to grow more than 7 percent in 2009. Yes, that’s down from the double-digit pace of recent years, but it’s stronger than most other nations.”(Foroohar, Liu, Mary, & Duncan, 2009) In other words, it is becomes obvious that the Chinese command-and-control system can work more effectively and show more efficient results than any other market-based systems as in the terms of economic stress. However, it seems that China’s model of capitalism tends to demonstrate great results where other brands of capitalism actually fail. And it becomes even more of an issue when we consider the fact that United States and Europe are nationalizing the banking and car industries and establishing heavy financial regulations, thus moving toward state control. It is out of doubt that China is governed by a radical pragmatism, thus being focused on a slow but substantial changeover toward freer markets. Deng Xiaoping, China’s original capitalist roader, called it “crossing the river by feeling for the stones.”(Foroohar, Liu, Mary, & Duncan, 2009) Even though the state still puts forth a tenacious and stabilizing hand, it has emancipated a private sector that controls no less than half the economy. However, this number may grow to approximately 70 if state-owned companies, which operate as private firms, are comprised. In China’s economy the state controls the stock markets, fixes prices in primary industries and staffs major bank posts with Communist Party members and pointing out to whom they are supposed to lend and in what to invest, thus implying that there is no actually free market in China. However, state meddling is actually the main reason why China is not decelerating as rapidly as the other major world economies, especially because of limiting foreign investment in the vast banking sector and avoiding the strange financial innovations that are the base of the global economic crisis. Taking into consideration the disastrous world economic situation China’s bureaucrats have an opportunity to choose not only from traditional western market tools, but from their exceptional arsenal as well. “Early last year, as the housing market was overheating, they simply ordered bankers to cut back on housing loans. Then, as home sales began to fall, they offered market incentives, like lower taxes on home purchases. They have launched economic rescue efforts similar to those in the West, including a $600 billion plan to ramp up government spending, and big interest-rate cuts via the state central bank.”(Foroohar, Liu, Mary, & Duncan, 2009) They have also put out certain orders that would be considered as inappropriate interference in the west, thus calling in recent weeks on state industries, like steel and construction, to sufficiently increase their roles in the economy by acquiring new assets at home and abroad. Consequently, China recently improved upon Germany in the amount of patents it registered. The latest five-year plan of the country’s Communist Party has set China a determined goal of getting to world-class heights in the fields of science and technology. The plan determines Chinese probes to orbit the moon next year and land on it by the year 2010. However, the economic successes of the Communist Party are not the only remarkable achievements. “Chinese cities are safer than places like São Paulo or Bogotá, and they seem cleaner and more orderly than the slums of Nairobi or Soweto in South Africa. Beijing and Shanghai boast a lively cultural scene, and broadband Internet access is already taken for granted in the country’s major cities. Mobile phone reception is even available in small villages.”(Lorenz & Wagner, 2007) China’s faith in its capacity to shape markets may originate from the fact that its leaders are predominantly engineers who were trained to construct based on a plan. It is interesting that eight out of the nine top party members have engineering backgrounds, and rationality of their profession may be of a great assistance when trying to explain and understand why they didn’t accept the risky western financial innovation. “For these economists, the fall of the Iron Curtain offered glaring proof that their hypotheses were correct. Indeed, planned economies in Soviet bloc countries were failures, creating poverty instead of affluence and leaving industrial wastelands in their wake.”(Lorenz & Wagner, 2007) Moreover, these ruling engineers are in charge of a system that is extremely process-oriented and preoccupied with performance metrics. According to Foroohar, Liu, Mary, and Duncan (2009) the ambassador Wu Jianmin of the Chinese Foreign Ministry recalls a recent meeting with a deputy mayor from Wuxi who could compare in detail his local economy with that of the United States in the 1970s, thus being concerned about the fact that his service sector hadn’t grown larger. China’s efficient implementation of command capitalism contains, at most, limited lessons for the United States or Europe. In the end, it’s a lot easier to increase growth by ordering engineers working in an autocratic system to build roads where there are none, as in some regions of China, than to accelerate growth in a developed nation like the United States. However, the fact that an increasingly rich China is still doing well deserves to be studied thoroughly, not least for the credit crisis is inciting a wider questioning of free-market orthodoxy. “It is worth remembering that China is the only major nation that is experiencing neither a credit crisis nor a crisis of confidence,” notes Andy Rothman of CLSA, a bank specializing in emerging markets.(Foroohar, Liu, Mary, & Duncan, 2009) Consequently, it appears that communist Party leader Hu and his Politburo colleagues are not the only ones behind the changes that have affected this huge country. Undoubtedly, they are responsible for implementing the dominant strategies behind China’s economic miracle, and for this task they take the necessary time, like hours that Western politicians waste doing the rounds on talk shows. On the other hand the politburo consistently solicits advice and reports on the latest global trends in science and business, like on issues running the gamut from biotechnology to health insurance.

China is a huge country that is plays a key role in the world economy, having more than one fifth of the world population living in it. Things that occur in China definitely affect the rest of the world. Lately the Chinese economy has been a vital factor when determining the degree and depth of recessions on a world level. The actual and intensive growth of the Chinese economy in the recent period provides a thorough explanation of the reason why world recessions have been milder than would otherwise have been expected. However, it is assumed that in the future this will turn into its opposite with China becoming a big factor in determining a major crisis on a world level. Regardless China’s overall size and growing authority in the global economy, Chinese officials and scholars confirm that the country is still experiencing intensive development, thus grappling with serious issues of lifting millions out of poverty and reducing the exceeding income gap between the city and countryside, where most Chinese citizens live. China improved to increase its growth in 2007 to 13% against 11.9 %, thus gaining $3500 billion dollars on the basis of the exchange rate by the end of 2007. This shows that the intensity of economic growth is getting higher every year, for the country continues to develop and grow economically.

References

Ariana, E. C. (2009). China passes Germany with 3^rd highest GDP. The Washington Post. Retrieved February 22, 2009, from http://www.washingtonpost.com/wp-dyn/content/article/2009/01/14/AR2009011401456.html

Foroohar, R., Liu, M., Mary, H., & Duncan, H. (2009). China’s economy stays out of the red. Newsweek. Retrieved February 22, 2009, from ABI/ inform Global database, (Document ID: 1625314781).

Lee, D. (2007). The world – China to join top 3 economies. Los Angeles Times. Retrieved February 22, 2009, from http://articles.latimes.com/2007/jul/20/business/fi-chinaecon20

Lorenz, A., & Wagner, W. (2007). Does communism work after all? Red China, Inc. Retrieved February 22, 2009, from http://www.spiegel.de/international/spiegel/0,1518,465007,00.html