Essay/Term paper: China's economic growth due to recent foreign policies

Essay, term paper, research paper:  Economics

China's Economic Growth Due to Recent Foreign Policies


Recent Chinese economic policies have shot the country into the world
economy at full speed. As testimony of this, China's gross domestic product has
risen to seventh in the world, and its economy is growing at over nine percent
per year (econ-gen 1). Starting in 1979, the Chinese have implemented numerous
economic and political tactics to open the Chinese marketplace to the rest of
the world. Just a few areas China's government is addressing are agricultural
technology, the medical market, and infrastructures, like telecommunications,
transportation and the construction industry. Chinese reform measures even
anticipated the rush of foreign investment by opening newly expanded industries
to out-of-country investors. Effects of this sudden change in economic strategy
by a world power can be felt by practically every nation of the globe involved
in international trade. The change in the amount of imports and exports to and
from China will increase the demand on countless markets, from automobile, to
petrochemical, to pharmaceuticals, and optical fiber. Also, with all the
foreign investment China is receiving, the socialistic republic will only grow
more and more interdependent upon the world economy. However, 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.
The main goal for China's modern foreign policies is the development of
the Chinese infrastructure. The significance of improved communication and
transportation cannot be over-stressed. Economically, enhanced means of
communication and transportation allows more expedient supply and demand
scheduling. Two of the latest Chinese reform measures to aid in the development
of the country are the Provisional Regulations on Direction Guide to Foreign
Investment and the Catalogue Guiding Foreign investment in China. Both these
policies place specific industries including telecommunications, machinery, and
electronics on top priority. Funding for these projects come from foreign
investments and appropriations from the Chinese government in the form of grant
financing, and legislative or administrative support.
Yet another example of the Chinese emphasis on industrial based growth
is the far-reaching goal of having just under 100 million telecommunication
lines by the year 2000. China's Central Ministry of Posts and Communication said
that in order to complete this major task China will enlist the aid of major
overseas suppliers and create manufacturing plants within the nation. AT&T,
Motorola, Northern Telecom, Alcatel, Erricsson, NEC, and Siemens are just a
handful of the multinational companies which hold a considerable share of the
Chinese telecom market, once again proving that China is becoming a party to
global interdependence.
The Chinese pharmaceutical market, much like Chinese industrial markets,
is experiencing rapid growth due to reforms in China's economic strategy. The
nation's government has decided to lower import tariffs and remove the necessity
of an import license to bring pharmaceuticals into the country. Also, patented
foreign drugs, such as Tylenol, are now being protected from counterfeiting by
administrative action. The result of these provisions are overseas contractual
investments totaling $1.5 billion in the past five years, and income from the
medical industry's exports reaching 2.6 times the amount five years ago,
according to Zheng Xiaoyu, director of the State Pharmaceutical Administration
(scitech/med 1). The pharmaceutical market's growth is another example of the
economic progress China has made.
Even after accounting for all the economic benefits recognized by the
world, the Chinese still come out as the country with the most gains. However,
there are more motives behind China's market reforms than just purely economic.
On the political front, China is fast becoming an integral part of international
organizations. The Chinese government is making a conscious effort to reenter
GATT (the General Agreement on Tariffs and Trade), realizing the importance of
creating a favorable trading status among foreign nations. Slowing this
progress, the 124 nation strong trade bloc has requested that numerous
conditions must be met by China before the nation can become a member of GATT
once again. Several of these provisions are the "elimination of import
prohibitions, restrictive licensing requirements and other controls or
restrictions; lifting of all restrictions on access to foreign exchange and full
convertibility of the Chinese currency" (china-tr. 2). Other important key
themes behind China's Open-Door policies are "economic and technological
cooperation with the West" (china-tr 1) and that China's government no longer
supports Third World revolution. Instead, China realizes that cooperation with
developing countries would be far more practical.
Although Chinese foreign policy is aimed at opening the nation's entire
economy to the world, it neglects the agricultural market almost entirely, with
the exception of technical contracts. These contracts are designed to improve
the transfer of technologies to improve crop yields. "Technical contracts are
made between farmers and village economic cooperatives and a wide variety of
offices and technical personnel from different administrative levels" (int12 1).
The funding for the technology used by the agricultural industry can be traced
to extension stations of political parties, finance bureaus, or local insurance
company. Since the groups funding technical contracts are nothing more than
investors, a portion of the profits from increased production due to the
technological advancements are returned to these groups. However, the
technology providers also bear the risk of investors, "if output and economic
returns can't reach prescribed figures, the extension administrations have to
make up the losses" (intl2 2).
Like all good things, China's formidable economic growth has its
downsides. A few of these detriments are inflation, an under-aided agricultural
market, government inefficiency, and geographically uneven development. High
inflation, caused by a demand for more exchange medium on the Chinese market is
causing Chinese currency to depreciate relative to other national currencies. A
lack of emphasis on the agricultural market is causing that sector of the
Chinese economy to fall behind, and soon the supply of agricultural products
will fall below the demand for these goods, resulting in a sortage. Another
problem is the inefficiency of large, state-owned production facilities can be
explained by excess bureaucratic red tape and corruption. Finally, there has
been an uneven distribution of development between the land-locked, western
section of China and the industrialized east-coast, consequently causing
ineffective land use.
China has quickly become a world leader in trade and will only increase
in importance to the global economy. These facts are proven with China's
current economic statistics --growing at over nine percent per year-- and
economists' projections of the nation's future --China will double its gross
domestic product of the year 2000 in the year 2010. The way the Chinese
government achieved these impressive economic figures are through a thorough
renovation of Chinese trade policies. Reform measures in the country range from
reduced trade barriers and technical contracts for agriculture, to
infrastructure investment policies and improved standards for pharmaceutical
products. However, stemming from China's economic growth are dilemmas such as
inflation and uneven development of the country.
On a planetary scale, the effects of China's Open-Door policies are best
described through a visual representation like the attached graphs. These
graphs represent the supply of Chinese goods and services and demand for
Chinese products by other countries. As Chinese policies are placed in effect
the supply curve shifts to the right because of improved quality standards and
higher production capabilities. Open-Door policies also indirectly increase the
demand for Chinese goods and services due increased Chinese competitiveness on
foreign markets.

Works Cited

http://www.wissago.uwex.edu/test/joe/1992fall/intl2.html. http://www.china-
embassy.org/scitech/med.htm.
http://www.chinesebusinessworld.com/business/bgeneral/econ-gen.html.
http://www.dfait-maeci.gc.ca/english/geo/asia/china-tr.htm.