Your SlideShare is downloading. ×
Research Topic
What are the key factors that have led to the rise of the ‘BRICs’ (Brazil, Russia, India and China) in the
...
Rise of BRIC
With the rising middle class in emerging economies, rising concerns of dependency over fossil fuels
which has...
Growth factors and similarities
There has been an impressively sustained high per capita GDP growth more than a decade (wi...
Trade (% of GDP)
      80

      70

      60

      50
 %



      40

      30

      20

      10

       0
           ...
Year 2007                                         Year 1998




GDP composition over a decade (Source: World Development I...
Unemployment rate (% of total workforce)




Source: World Development Indicators, 2009


Demographic characteristics
BRIC...
Age dependency ratio (% of working -age population)
                  70

                  60

                  50

    ...
Aid (% of GNI)
                 0.7
                 0.6
                 0.5
                 0.4
                 0.3
  ...
Cost of business start up procedure (% of GNI per capita)
           90
           80
           70
           60
        ...
The Rise of BRICs would embark upon a shift in global production networks which would lead major
changes in demand supply ...
Higher growth may lead to higher returns and increased demand for capital in these markets—and
for the means to finance it...
China – the rising dragon, (most influential amongst BRICs)

Over a period of last three decades, China’s impressive growt...
PPP). China also focused on human capital development which reflects in its high-tech product
exports accounting for 28.6%...
States. The current global economic slowdown (especially among its major export markets—the
United States, the EU, and Jap...
Source: WTO statistics, 2009




Source: WTO statistics, 2009

Global financial crisis

Globally, the asset price bubble b...
which ignited second order impacts of crisis across the globe. Due to emigration and job cuts,
            remittances to ...
Source: Development Policy and Analysis Division, WESP, United Nations 2009




Source: Development Policy and Analysis Di...
Source: WTO statistics, 2009

Volume of world merchandise trade (exports & imports) by selected region, 2000-2008 (Annual ...
Financial Crisis and China over global map (source: Harvey, D., 2003, Krugman & Obstfeld, 2009, et.al.)




Impact of fina...
Growth rate dipped to 6% in first quarter of 2009 as oppose to what government claims to guarantee
8% growth necessary to ...
The rise of Chinese exports has so far proven to be difficult for least developed countries like
Lesotho3 which subsequent...
Source: WTO statistics, 2009




Source: WTO statistics, 2009

China’s future export growth is likely to come from higher-...
Imports of primary commodities, natural resources and minerals

Reduction in agricultural land migration has resulted stag...
Amid financial crisis, although China’s has become the world’s largest exporter and its share of world
exports jumped to a...
toward democratic administrations in aid receiving countries. With the unconditionality in aid and
cheap loans to African ...
many global governance arenas balancing national interests with regional and global challenges and
responsibilities. Howev...
In the wake of financial crisis, China is playing important role in rebalancing global growth. All the
recent statistical ...
References

Commission on growth and development, 2008. The Growth Report Strategies for Sustained Growth
and Inclusive De...
Politics, [online] 14: 4, 375 — 392
Available at: http://dx.doi.org/10.1080/13569770802519284
[Accessed 21 Nov 2009]


Hun...
Available at: http://www.gees.org/documentos/Documen-03281.pdf
[Accessed Nov 28th 2009]


Nolan, P., 2005. China at the cr...
Wade, R., 2008. Financial regime change?, New left review, [online] 53 sept oct 2008
Available at: http://www.newleftrevie...
Appendix (source: transforming rebound into recovery, A World Bank economic update on East Asia
and pacific, November 2009...
Page | 33
Page | 34
Upcoming SlideShare
Loading in...5
×

Rise Of Bric And Role Of China

16,367

Published on

An academic work on Rise of Brazil, Russia, India, China and role of China in global economy amid financial meltdown

2 Comments
1 Like
Statistics
Notes
No Downloads
Views
Total Views
16,367
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
479
Comments
2
Likes
1
Embeds 0
No embeds

No notes for slide

Transcript of "Rise Of Bric And Role Of China"

  1. 1. Research Topic What are the key factors that have led to the rise of the ‘BRICs’ (Brazil, Russia, India and China) in the world economy? Focusing on ONE of these countries, examine how its position is changing in the world economy in the context of the current global recession. Structure 1. Rise of BRIC and factors contributing the rise 2. China – The rising dragon, (most influential amongst BRICs) 3. Global financial crisis a. Impact on China and major challenges ahead 4. China’s global foot prints across three major dimensions amid financial crisis a. Trade, b. Foreign investments, Aid & human rights, migration c. Global governance, d. Environment 5. Conclusion - China’s contribution in rebalancing global growth Abstract Although explored by a trans-nationalist, the term ‘BRIC’ has gained momentum with the recent summit held in June last year. The rise of BRIC is associated with major global shifts. Also there are opportunities and challenges with this rise. But there are common factors which made BRIC increasingly noticeable atleast during last decade. Surely, the unprecedented economic growth and the burgeoning middle class are amongst the visible factors. The other factors are structural and unique advantages. During the past decade, much has been contributed by the rising demand in the global economy where survival of the fittest is very much in practice. More importantly, the dimension of financial crisis makes the case of exploring one of the economy i.e. China much interesting. The rise of china, its competitive advantage and sustainable growth has its roots in Mao era and the delayed focus on industrialization turned out to be boon. Long ago (some 25 years back), all I use to know about china is their hard work and their story of riding bicycle rather than using automobiles (to preserve the environment amongst other the other reasons). Contrasting to this, in 2009, China became world’s biggest car market. This huge shift in Chinese affordability has its global repercussions (both due to causes of this change and its further impact). China is in its way of becoming a global superpower and in the era of financial crisis, it comes out that China has an increasing role to play in rebalancing the global economic growth. Page | 1
  2. 2. Rise of BRIC With the rising middle class in emerging economies, rising concerns of dependency over fossil fuels which has its contributions to environmental degradation, future energy security & threats of volatility and shift in global production networks, the BRICs is emerging as a “new pole”. With the recent BRIC summit held in June 2009, it has been revealed that the idea behind ‘BRIC’ is towards working out common approaches to issues concerning the development of the global financial architecture and of the world economy as a whole. There are also other possibilities of coordination in energy, agriculture and high technology (Russia Now, 22nd Nov., 2009). The factors leading rise of Brazil, Russia, India and China although being geographically distant and with varying interests would lead to detrimental outcomes which can potentially lead towards a new international political economic order. Over more than a decade, there has been an impressive growth in BRIC economies which has been backed by relative political stability and institutionalization in these nations. The common factors and characteristics of this rise in ‘BRIC’ economies are:- •Size of the economies •Fastest growing economies •Diversity •Biggest source of labour •Rising middle class •Rising consumption Demographic factors expenditures •Low market penetration •Trade dependency •Rising f ocus on innovation Income & demographic Changes Growth Economic Currency Structural factors Growth Rise of BRICs Movements factors Global demand patterns •Mature markets •Brazil – Commodities and •Declining reliance on Aid natural resources •Low Fiscal def icits •Russia – Technology, oil Unique advantage •Current account surplus and •India – Technology, IT& ITES large f orex reserves •China – Cheap abundant •Declining central labour government’s consumption expenditures •Positive change in business environment “Factors and possible outcomes – Rise of BRICs” Page | 2
  3. 3. Growth factors and similarities There has been an impressively sustained high per capita GDP growth more than a decade (with china more than 3 decades) supported by decline in population growth rate. With this, BRIC economies have become a biggest source of labour with rising female participation and declining unemployment levels (less that 10%). A good amount of contribution to this growth goes to rise in demand, investment in innovation and human capital and rise in total factor productivity. While China and India were shining because of their trade in manufacturing and services, Russia and Brazil gained proportionately due to rise in demand for commodities amid a sustained rise in prices until global financial crisis. This rise in growth is associated with changing consumption patterns in these countries which would embark upon a significant shift in global production networks. GDP growth per capita (annual %) 14 12 10 8 % 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 -2 Brazil China India Russian Federation Source: World Development Indicators, 2009 Central Government's final consumption expenditure (% of GDP) 25 20 15 % 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Brazil China India Russian Federation Source: World Development Indicators, 2009 Page | 3
  4. 4. Trade (% of GDP) 80 70 60 50 % 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Brazil China India Russian Federation 2 per. Mov. Avg. (China) Source: World Development Indicators, 2009 Merchandise trade as a % of GDP 80 70 60 50 % 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Brazil China India Russian Federation 2 per. Mov. Avg. (China) Source: World Development Indicators, 2009 Trade in services (% of GDP) 16 14 12 10 8 % 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Brazil China India Russian Federation 2 per. Mov. Avg. (India) Source: World Development Indicators, 2009 Page | 4
  5. 5. Year 2007 Year 1998 GDP composition over a decade (Source: World Development Indicators, 2009) Research and development expenditures (% of GDP) 1.6 1.4 1.2 1 % 0.8 0.6 0.4 0.2 0 2000 2001 2002 2003 2004 2005 2006 Brazil China India Russian Federation 2 per. Mov. Avg. (China) Source: World Development Indicators, 2009 Household final consumption expenditure (% of GDP) 70 60 50 40 % 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Brazil China India Russian Federation 2 per. Mov. Avg. (China) Source: World Development Indicators, 2009 Page | 5
  6. 6. Unemployment rate (% of total workforce) Source: World Development Indicators, 2009 Demographic characteristics BRIC together comprises more than 40% of world population and a one third of land mass. With these characteristics, BRICs is a major stakeholder in global market. The burgeoning middle class has contributed to the rising focus of trans-national corporations leading new demand and supply patterns in global value chains. Demographic Change, 1950-2050, by Five-Year Age Group - continued Source: Growth Commissions report, 2008 Page | 6
  7. 7. Age dependency ratio (% of working -age population) 70 60 50 40 % 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Brazil China India Russian Federation Source: World Development Indicators, 2009 Structural changes and macroeconomic environment Liberalized Trade, financial Liberalization and structural adjustments are leading towards new competitive market opportunities and efficiencies in BRIC economies. Rising FDI inflows (China being the third highest in world, 2009 figures) boosting liquidity in the economy represents investors favorable policy environment and flourishing domestic markets. Declining Aid as a % of national income and growing self reliance is another feature of the rise in BRICs. Low fiscal deficits and declining central government expenditure shows efficiency gains in the system. Current account surpluses easing demand side constraints. There has been a positive change in business environment in BRIC economies (reduction in Cost and duration of start of business procedures) and having unique market characteristics and market potentials with (consumer base and penetration) there is a brilliant emerging opportunity for BRIC nations. FDI net inflows as % of GDP 6 5 4 3 % G D o P f 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 Brazil China India Russian Federation 2 per. Mov. Avg. (China) Source: World development Indicators 2009, World Bank Page | 7
  8. 8. Aid (% of GNI) 0.7 0.6 0.5 0.4 0.3 % N G o f I 0.2 0.1 0 2000 2001 2002 2003 2004 2005 2006 2007 Brazil China India Russian Federation 2 per. Mov. Avg. (China) Source: World development Indicators 2009, World Bank Aid per capita (current US$) 12 10 8 6 % N G o 4 f I 2 0 2000 2001 2002 2003 2004 2005 2006 2007 Axis Title Brazil China India Russian Federation 2 per. Mov. Avg. (China) Source: World development Indicators 2009, World Bank Current Account balance (% of GDP) 20 15 10 5 % G D o P f 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 -5 -10 Brazil China India Russian Federation Source: World development Indicators 2009, World Bank Page | 8
  9. 9. Cost of business start up procedure (% of GNI per capita) 90 80 70 60 50 40 30 % N G o p 20 e a c r t f I i 10 0 2003 2004 2005 2006 2007 2008 Brazil China India Russian Federation Source: World development Indicators 2009, World Bank Unique characteristics The rise of BRIC, to a certain extent, was (before the global meltdown times) an outcome of global boom in demand and contributions by individual economies owing to their unique characteristics. While Brazil and Russia’s rise was by and large contingent upon fuel and non fuel commodity demand and pricing boom, India and China became reliant on their labour and human capital respectively by manufacturing and services. Brazil has an abundant natural resources and Amazon as a source of trading various commodities like lumber, oil, palm, soya etc. Russia, on the other hand has surplus non renewable resources (which has its own controversies with china1 recently) whose demand of natural resource and energy is growing tremendously. China’s rise in the global arena is due to its focus on manufacturing and trade utilizing its cost effective, healthy and educated labourforce for its production and trade. China’s immediate neighbor, i.e. India’s progress is noticeably unique due to its IT and ITes revolution which shows her focus on technology. India too has an advantage of burgeoning middle class. BRICs amid international political economy As per the Long term projection by Goldman Sachs (Goldman Sachs Global economic paper 99), in 2025 BRICs are going to be half the size of G-6 and in 2045 BRICs will ovetake G6. Apparently, in the midst of global financial crisis, it seems these projections would need further discounting but sooner or later there will be impact of this massive upsurge. This would lead to a new era which would be reminiscent of rising participation of BRIC nations in global commons and its governance. 1 The whole idea of shanghai cooperation organization in order to wall againt Russian oil. For more see Raphael K., Dirk M. “The impact of Asian drivers on developing world” World Development Vol. 36, No. 2, pp. 197–209, 2008 Page | 9
  10. 10. The Rise of BRICs would embark upon a shift in global production networks which would lead major changes in demand supply (for example the rise of East Asian tigers) much of which is already on happening. As a ‘new pole’, the impact of BRIC can be unprecedented in several dimensions. The first and foremost impact is going to be on environment, a global common. Much of this change would rest upon what BRICs countries choose to do in near future (for example emission cuts, clean fuel technology, etc.). There is already some amount of action apparent in Chinese case which is going a play a big role owing to its industrial reliance. A shift in Global governance would the other major impact of the rise in BRICs. China and India are already being considered as a voice of south (kaplinsky, R., Messner., D., 2008). With three out of the four potentially largest economies in 2050 residing in Asia, there could be an important geopolitical shift towards the Asian region (China’s growth is already having a significant impact on the opportunities for the rest of Asia). Sustained strong growth in BRICs economies might have similar impacts on their major trading partners. The rise of BRICs would be a driving force towards demand pricing range of commodities which would open up new opportunities for transnational corporations. Source: - Goldman Sachs report on BRIC, 2003 Page | 10
  11. 11. Higher growth may lead to higher returns and increased demand for capital in these markets—and for the means to finance it. The pattern of capital flows might move further in their favour and major currency realignments would take place (Goldman Sachs, 2003). Rising exchange rates could contribute a significant amount to the rise in forex reserves in the BRICs which would further reduce demand side constraints in balance of payments. About 1/3 of the increase in forex reserves would come from rising currencies, with the other 2/3 from faster growth. The increasing importance of China across several dimensions in wake of financial crisis makes it an interesting case while exploring its contribution in rebalancing global growth. Page | 11
  12. 12. China – the rising dragon, (most influential amongst BRICs) Over a period of last three decades, China’s impressive growth is reflected in its global footprints across several key dimensions and has been a topic of great concern especially in the era of global financial crisis. China’s case is significant not only due to its current account surpluses, countercyclical fiscal policies or the issue of over accumulation and under consumption in the distressed times, but to a larger extent the long term implications of the past impressive growth, its sustainability and the gradual rise as an Asian giant 2 concerning future of the global political economy. As per John Wong (2003, p. 41), in purchasing parity (PPP) terms in the year 1999, China became the world’s second largest economy after the USA. According to the World Bank, it took Britain about 58 years to double its per capital income (from 1778-1838), 34 year for Japan (1885-1919) and 11 years for South Korea (1966-1977) but only 9 years for China (1978-1987) and another 9 years to double this again (1987-1996) (World Bank, 1997). China’s GDP growth from 1978 to 2007 (Source: Wu, Q., Zhang, Y., 2009) (Source: Wu, Q., Zhang, Y., 2009) The post Mao effects benefited China with healthy and educated labourforce which fueled the massive industrialization drive. Paul Krugman (1994), emphasizing the importance of total factor productivity in growth argues about East Asian growth models. In case of China, a substantial amount of growth in GDP attributes to Total Factor Productivity, which was generated from economic reforms and open door policy (World Bank, 1997). China unlike India, managed to curb to considerable extent poverty in the country to less than 20% of population living under $1.25 a day (at 2 The rise of China has so far has been regional which has been emphasized by Jeffery Henderson’s China and Global development: towards a global- Asian Era?, 2008 Page | 12
  13. 13. PPP). China also focused on human capital development which reflects in its high-tech product exports accounting for 28.6% of the total exports in 2007 compared with 4.7% in 1992 (Qingjun W., Yuzhong Z., 2008). China is also growing its resource resource pool of fresh engineering graduates estimated to be 600,000 annually (McGregor 2006). There are also speculations of around 1200 principal researchers/ scientists and considerable focus on nanotechnology in china. Chinese competitive advantages in production are big country, cheap price of factors of production i.e. land and energy, availability of cheap labour, high investment fueled by high household and corporate savings (Chamon and Prasad, 2008), high FDI promotes high capital accumulation. The whole interplay of factors of production is being backed by state capitalism and macroeconomic policy of fixed exchange rate and cheap capital by state owned banks. Chinese exports of goods and services as a % of GDP Source: Wu, Q., Zhang, Y., 2009 Gross savings (Source: World development Indicators, World Bank, 2009) China’s net exports (exports minus imports) contributed to one-third of its GDP growth in 2007. China’s exports of goods and services as a share of GDP rose from 9.1% in 1985 to 37.8% in 2008 (Wayne M., 2009). In 2007 China’s foreign exchange reserves reached up to $1,530,000,000,000 and terms of trade surplus of $262,200,000,000 in 2007. China has largest trade surpluses amongst all nations. Foreign direct investment (FDI) flows to China have been a major Manufacturing wages during catch-up, 1950-2005 (Source: Hung, 2004) factor behind its productivity gains and rapid economic growth. FDI flows to China in 2007 totaled $75 billion, making it the largest FDI recipient among developing countries and the third largest overall, after the EU and the United Page | 13
  14. 14. States. The current global economic slowdown (especially among its major export markets—the United States, the EU, and Japan) is having a significant negative impact on China’s export sector and industries that depend on FDI flows. The figure of the changes in China’s trade surplus (hundred million dollars)- Source – Chinese statistical handbook, 2008 Foreign Direct Investment, net (BOP, Current US$) - Source: World development Indicators, 2009 Source: WTO statistics, 2009 Page | 14
  15. 15. Source: WTO statistics, 2009 Source: WTO statistics, 2009 Global financial crisis Globally, the asset price bubble burst and the fall of major banks in US affected on several fronts. Most of the commodity exporting developing economies (fuel and non fuel) saw a declining terms of trade due to sharp dip in commodity prices. This decline was a cumulative causation i.e. crisis, not only impacted relative prices of commodities compared to manufacturing products but also reduced income elasticity of demand. Although price elasticity of demand should help in medium term but this would be contingent to the consumer sentiment and policy interventions in short & medium term and macroeconomic policies over a long term horizon. The liquidity crunch in the US resulted in balance of payment constraints for all the major exporters owing to a severe decline in demand. Another impact of the crisis was the reaction of market in terms of downsizing and significant lay offs Page | 15
  16. 16. which ignited second order impacts of crisis across the globe. Due to emigration and job cuts, remittances to developing nations suffered terribly. Declining foreign direct investments added to the demand constraints in favored nations. All this may lead to a serious trouble for the Aid dependent nations if proper measures are not taken, which is so far not the case. Source: World BankSource: Development policy and analysis division WESP, Report, 2009 United Nations 2009 Primary, secondary and tertiary level of impacts of financial crisis (source: Harvey, D.; Thirwall, 2003, et.al.) Commodity glut Trade wars in order to retain competitive advantage Decline in global welfare Decline in Aid Possible social unrest Over accumulation - under consumption Surge in unemployment and emigration Declining remittance Deteriorating FDI Liquidity crunch Downsizing & lay offs Decrease in income elasticity of demand Commodity prices declines Terms of trade deterioration, Balance of payment decline, Page | 16
  17. 17. Source: Development Policy and Analysis Division, WESP, United Nations 2009 Source: Development Policy and Analysis Division, WESP, United Nations 2009 Page | 17
  18. 18. Source: WTO statistics, 2009 Volume of world merchandise trade (exports & imports) by selected region, 2000-2008 (Annual percentage change) Source: WTO statistics, 2009 Page | 18
  19. 19. Financial Crisis and China over global map (source: Harvey, D., 2003, Krugman & Obstfeld, 2009, et.al.) Impact of financial crisis on China and major challenges ahead Financial crisis, which originated in the latter half of 2007, impacted China severely. The financial system was relatively insulated from direct impacts. China’s merchandise exports collapsed from 36% of GDP in 2007 to around 24% in 2009, current-account surplus fell from 11% to an estimated 6% of GDP (WTO; IMF, 2009). Also, its net exports in 2007 which accounted for almost three percentage points of GDP growth, in 2009 they contributed to the decline in growth to the tune of three percentage points. As per estimates of Ministry of Human Resources and Social Security there are losses of 560,000 urban jobs last quarter of 2008. Urban unemployment rate reached 4.2% (SCMP 2009). January, reports of migrant job losses reached 20 million with 6–7 million new workers expected to enter the migrant labour force during the year (Central Work Leading Group 2009). Page | 19
  20. 20. Growth rate dipped to 6% in first quarter of 2009 as oppose to what government claims to guarantee 8% growth necessary to secure an acceptable level of employment and avoid social disruption (Sarah C., Jing gu 2009). There are challenge on the way of balancing the immediate need to restore growth and create jobs, against the more fundamental and longer term goals of reorienting the economy, reducing export dependence, promoting domestic demand and moving towards higher value-added production. A major challenge in front of Chinese central government is to de-regulate and reform financial sector. This would not only imply banking sector reforms but also implies to the limited availability of financial instruments. There is still a high incidence of non-performing loan by state owned enterprises mainly on cheap credits which bounces back to the domestic savers with low interest rates in savings and overall loss to the taxpayers. Lack of flexibility in exchange rate affects government, institutions and private in terms of loss over investment. Clearly, having a policy of command and control macroeconomic management and sterilizing operations on inflation shall be difficult for China in long run. The more globalised china the more exposed to external shock (Prasad, 2008). It will require politically contentious policies such as price adjustments for energy and other natural resources to reflect the real cost of production and reduce the negative externalities of China’s industrial development (Xiao 2009). Government need to manage a tradeoff between short term and long term objectives i.e. regional imbalances which happened due to export focus of the coastal regions while recently more rapid growth has been detected in the central provinces (Caijing 2009). In dealing with this situation government would need to address social security, although at relaxed credit, but efficient financial investments. Internal regions would need support in dealing with returned migrants, loss of remittances, income and need for social protection. In absence of proper risk assessment and availability of relaxed credit, there can be potential inefficient and polluting project in the offing. This would require a great amount of synchronicity in between central expectation and local level facilitation (sarah. C, Jing Gu 2009) China’s global foot prints across various dimensions amid financial crisis - Trade, foreign investments, Aid & human rights and Global governance Exports With the WTO accession in 2001, once quotas to Chinese exports were removed, the exports from Sub Saharan African exporters fell by 26% to the United States (Raphael K., Dirk M., 2008, p. 207). Page | 20
  21. 21. The rise of Chinese exports has so far proven to be difficult for least developed countries like Lesotho3 which subsequent to the end of the Multi- Fibre Agreement, terribly suffered while South Africa’s supply of garments to its domestic market has declined from 80% to about 25% (Kaplinsky and Morris 2008). With regard to textiles, a recent World Bank study’s (Winters and Yusuf 2007, pp. 89–92) projections suggest that garment industries will be hit more heavily with declines of around 19% in Vietnam and North Africa (principally Egypt). The concerns of threat from Chinese competition to Latin American countries especially Mexico in high technology products such as electronics and car components are valid as they have been found suffering badly despite of having few miles away from US. Source: WTO statistics, 2009 Source: WTO statistics, 2009 3 For more on this see – Raphael K., Dirk M., “The impact of Asian drivers on developing world”, World Development Vol. 36, No. 2, pp. 197–209, 2008 Page | 21
  22. 22. Source: WTO statistics, 2009 Source: WTO statistics, 2009 China’s future export growth is likely to come from higher-value products, such as computer chips and cars (IMF Working paper, 2009, Henderson J., 2008) which would be spurred by the competitive advantage of country within country with different wage levels. Also, with the advantage of capital controls that will prevent its exchange rate rising as abruptly as Japan’s did in the 1980s, moving up the value chain would reap durable gains in its market share. Page | 22
  23. 23. Imports of primary commodities, natural resources and minerals Reduction in agricultural land migration has resulted stagnation in agriculture productivity hence there is a growing reliance on imports of food and other agricultural commodities. Grains from the US, soya and oilseeds from Brazil and Argentina are chiefly imported. China’s share of Brazil’s total oilseed exports rose from 20% in 2001 to 30% in 2004 (Gottschalk and Prates 2005). Similarly as an industrial input, China source huge mineral and metals form African and latin American countries. China’s share of Chile and Peru’s exports of copper, for instance, had increased, respectively, from 9% and 8% of the total in 2001 to 17% and 19% by 2004 (Gottschalk and Prates 2005). In Africa for instance, there are increasing proportions of Zambia’s export of copper, Congo’s exports of cobalt and copper, Zimbabwe’s exports of cobalt, and Ghana’s exports of aluminium (bauxite) are hugely diverted to China to feed its massive industrial revolution (Henderson J. 2008). China's hunger for natural resources has expanded across the globe. From Canada to Indonesia to Kazakhstan, Chinese firms are gobbling up oil, gas, coal and metals, or paying for the right to explore for them, or buying up firms that produce them. UN Comrade UN Comrade The Economist, Jan 7th 2010 Page | 23
  24. 24. Amid financial crisis, although China’s has become the world’s largest exporter and its share of world exports jumped to almost 10%, up from 3% in 1999, but, trade statistics for 2007-094 would reveal that China’s imports have been stronger than its exports, rebounding by 27% in 2009 (Upto November), when its exports were still falling. America’s exports to China (its third-largest export market) rose by 13% in 2009 (upto October). As per recent news, China has been reported to be World’s biggest car market in 2009. Much of this has happened due to demand inducing policies of central government. China overtakes US as world's biggest car market….13.5m vehicles sold in China in 2009, 10.4m in US… China sees 45% growth in car industry year-on-year…China's government incentivized growth in sales by lowering sales taxes on smaller, fuel-efficient cars and spent $730m (£450m) on subsidies for buyers of larger cars, pickup trucks and minivans. Also stimulus spending on building highways and other public works also helped to boost sales of trucks used in construction. – Agencies, guardian.co.uk, Friday 8 January 2010 14.52 GMT Foreign investments, Aid & human rights China’s foreign investments in developing countries are changing several dimensions on investment climate and deals and negotiations. Countries like D.R. Congo with a new deal in the offing with a Chinese mining firm for the extraction of copper5, are looking forward for such negotiations with western investors which is becoming a cause of concern for them. Chinese activities in Africa have a solid potential to contribute to African development, but a key challenge for SSA is in governance as it poses a unique management challenge (Martyn D. Johhana J., 2009). Mostly these investments are bundled with a package of Chinese workers who come along to set up the company and later on settle in these countries and thus leave local Africans unemployed (Henderson J., 2008). China with its multiplicity of funding sources and the diverse interests associated with them offers cheap foreign aid for budgetary support to African nations often without any conditions has been a cause of concern to the west. For instance, given its involvement in Angola’s oil industry, it is not a surprise that the Angolan regime has been a recipient of China’s largesse (Henderson J., 2008). As per an article in The Guardian, dated Thursday 8 February 2007, Chinese aid could set back progress 4 See Appendix 5 Socomin, the Chinese-Congolese joint venture company, is committing 0.5% of all investment on training the workforce and on technology transfer, while 3% will be spent on social provision for the local community. Furthermore, Socomin, is specifically required to subcontract 12% of its work to Congolese companies and limit its Chinese workforce to 20% of the total. For more see (Komesaroff, 2008). Page | 24
  25. 25. toward democratic administrations in aid receiving countries. With the unconditionality in aid and cheap loans to African governments, risks driving back into debt countries that have only just benefited from debt relief. The other side of coin can be seen as a win- win situation for both China and aid receiving nations. China would become a preferred trade partner (and hence would be able to retain its share of resources deemed necessary to sustain the pace of production and their exports) and aid receiving nations would gain empowerment by the prioritizing investments by self assessment rather than being directed. Clearly, in the wake of financial crisis, any financial support must be helpful to poor nations. The issues aggravates here as because in this back door entry game, ‘West’ is holding the door and any incentive leading to widening of door would be a cause of concern to the ‘West’. Also, currently China accounts for almost half of America’s total deficit, up from less than one-third in 2008 with even bigger slice of America’s market. In the first ten months of 2009 America imported 15% less from China than in the same period of 2008, but its imports from the rest of the world fell by 33%, lifting China’s market share to a record 19% (The Economist, Jan 7th 2010, Hong Kong). Global governance On the global governance front, with the rise of China along with other Asian giant India, there is growing consensus on what these countries choose to do or not to do has very often profound consequences for many other actors globally (Raphael K., Dirk M., 2008, p. 207). Concerns loom largely with global governance issue underpinning the existing potential power shift with the rise of China as a regional hegemon, however, a complete shift in global governance, may strengthen the voice of the developing countries in international organizations. So far, China’s strategies of trade, investment and aid in African context reflects its domestic orientation and not for the provision of global public goods such as poverty reduction. It comes out, in the wake of financial crisis that it will rather take some China’s accession to international treaties, 1949-2003 (Source: Chan, 2006 cited in; time for china to build up Raphael K., Dirk M., 2008, p. 201) governance capabilities in Page | 25
  26. 26. many global governance arenas balancing national interests with regional and global challenges and responsibilities. However, if china can steer through crisis, it would appear as a steadying factor in trade, investment, and aid compared with west and may become development partner of choice. Environment Source: The Guardian, Dec 7’ 2009 In 2007, China was the largest carbon emitter with emissions of 6283.6 million of tones of CO2. The Copenhagen summit ended recently, China announced cutting of carbon emissions to the tune of 45% by 2020 compared with 2005 levels. Although, due of its high economic growth rate, China's emissions will continue to rise rapidly for at least a decade but this target commits China to slowing the speed of emissions growth through the adoption of renewable energy, replacing old power stations with more efficient plants, and possibly capturing and storing more carbon. It is also likely to startle moves to introduce a carbon trading scheme and a carbon tax. By setting its first carbon target, China moves its policies more closely into line with international efforts to reduce greenhouse gases. Conclusion China has factor advantages which include land, labour, capital, human capital and technology supported by its capital controls. Though China’s competitive advantage has been a difficult problem to developing nations especially small developing nations but understanding economic history of global growth, it would come out that success has always been a relative measure. Understanding various dimensions of china’s presence, it becomes apparent that china is the new rising superpower. China is increasingly becoming one of the biggest stakeholders in global affairs (apart from military which has not been explored in this study) immediately after the ‘West’. Page | 26
  27. 27. In the wake of financial crisis, China is playing important role in rebalancing global growth. All the recent statistical evidences well support to the argument. The role played by Chinese imports, its rising consumerism, investments in primary secondary and tertiary circuits of growths (fiscal stimulus package), and environmental commitments, all suggests that China is doing much more than its part in the financial distressed times. Also Chinese overseas investments both in securing resources for its production led growth and in stabilizing the American economy must be appreciated as these investment spur demand which is very much required in order to sail through the state of crisis. There are arguments like adopting (On December 31st 2009, Paul Krugman wrote in the New York Times) “a beggar-everyone but yourself policy” when the world’s major economies are in a liquidity trap China is playing with the currency exchange rate. A closer examination would reveal that these arguments are clearly one side of the coin. In past 2 years, China’s imports have been significantly improved compared to the exports. Also, lower incomes encouraged consumers to trade down to cheaper goods, and the elimination of global textile quotas in January 2009 allowed China to increase its slice of that market. But mentioning china’s role in global economy, China need to overcome the dual challenges of balancing the immediate need to restore growth, create jobs one side and longer term goals of reorienting the economy, reducing export dependence, promoting domestic demand and moving towards higher value-added production on the other. China needs a long term strategy to achieve a sustainable growth which in one way can be beneficial to global economy in the era of crisis. Over a long term, there are issues across several dimensions which china needs to address in order to maintain the momentum. There are institutional issues like incapability of banking and financial sector (prone to external shocks in a globalised world) and non-performing loans (state guarantees), policy issues like flexible exchange rate (incurring losses over investment), command control macroeconomic management and sterilization operations on inflation (difficult in long run). There are social and demographic issues like one child policy and rising dependency, social security etc. coupled with an issue of democracy. There are also external issues of Chinese interventions which are environmental, loss in welfare of poor-manufacturing dependent nations (due to its competitive advantage) etc. which would be required to be addressed diligently in its march towards becoming global superpower. Page | 27
  28. 28. References Commission on growth and development, 2008. The Growth Report Strategies for Sustained Growth and Inclusive Development. The International Bank for Reconstruction and Development / The World Bank, [pdf] 2008 Available at: http://cgd.s3.amazonaws.com/GrowthReportComplete.pdf Cook, S., Jing, Gu., 2009. “The Global Financial Crisis: Implications for China’s South–South Cooperation”, IDS Bulletin [online] Volume 40 Number 5 September 2009 Available at: Published by Blackwell Publishing Ltd, (http://www3.interscience.wiley.com/cgi- bin/fulltext/122530974/PDFSTART) [Accessed 20 Nov 2009] Davies, M., Jansson, J., 2009. “Are African governments ready for China? Open Society Initiative for Southern Africa [pdf]. Available at: http://www.osisa.org/resources/docs/PDFs/OpenSpace- May2009/2_4_economic_injustice_p040-047_martyn_davies_johanna_jansson_china.pdf [Accessed 13th December 2009] Development Policy and Analysis Division, 2009. World economic situation and prospects, United Nations [pdf] 2009 Available at: http://www.un.org/esa/policy/wess/wesp2009files/wesp2009.pdf [Accessed: 12 Nov 2009] Elstrodt, H. P., Laboissière, M. A., Pietracci, B., 2007. Five priorities for Brazil economy, special edition: shaping a new agenda for Latin America, The Mckinsey quarterly, [online] March 2007 Available at: http://www.mckinseyquarterly.com/Five_priorities_for_Brazils_economy_1962 [Accessed 18 Nov 2009] Guo, K., Diaye, P. N’, 2009. Is China’s Export-Oriented Growth Sustainable? IMF Working paper series, [online] IMF -2009 WP/09/172 Available at: http://www.imf.org/external/pubs/ft/wp/2009/wp09172.pdf [Accessed 8 Jan 2009] Henderson, J., China and global development: towards a Global-Asian Era?', Contemporary Page | 28
  29. 29. Politics, [online] 14: 4, 375 — 392 Available at: http://dx.doi.org/10.1080/13569770802519284 [Accessed 21 Nov 2009] Hung, H., 2009. Rise of China and the global overaccumulation crisis, Review of International Political Economy, [online] vol.15: 2, 149 — 179 Available at: http://dx.doi.org/10.1080/09692290701869654 [Accessed 3 Dec 2009] Ianchovichina, E., Ivanic, M., Martin, W., 2009. Implications of the Growth of China and India for the Other Asian Giant: Russia, Policy Research Working Paper, The World Bank [online] WPS5075 Available at: http://econ.worldbank.org/external/default/main? pagePK=64165259&piPK=64165421&theSitePK=469372&menuPK=64216926&entityID=000158349_ 20091013154649 [Accessed 1 Dec 2009] Kaplinsky, R., Messner, D., 2008. Introduction: The Impact of Asian Drivers on the Developing World, World Development [online] Vol. 36, No. 2, pp. 197–209, 2008 Available at: http://japanfocus.org/data/kaplinsky.chi.ind.pdf [Accessed 22 Nov 2009] Krugman, P., 2009. Macroeconomic effects of Chinese merchantilism, The New York Times, [online] published December 31, 2009, 1:23 PM Available at: http://krugman.blogs.nytimes.com/2009/12/31/macroeconomic-effects-of-chinese- merchantilism/ [Accessed 8 Jan 2010] Mohan, G., Power, M. 2008. New African Choices? The Politics of Chinese Engagement', Review of African Political Economy, [online] Vol. 35: 115, 23 — 42 Available at: http://dx.doi.org/10.1080/03056240802011394 [Accessed 4 Dec 2009] Morrison, W. M., 2009. China and the Global Financial Crisis: Implications for the United States. Congregessional research service [pdf]7-5700 RS22984 Page | 29
  30. 30. Available at: http://www.gees.org/documentos/Documen-03281.pdf [Accessed Nov 28th 2009] Nolan, P., 2005. China at the crossroads. Cambridge, UK: Polity press. McGreal, C., 2007. Chinese aid to Africa may do more harm than good, warns Benn, The Guardian, [online] Thursday 8 February 2007 Available at: http://www.guardian.co.uk/world/2007/feb/08/development.topstories3 [Accessed 13 Nov 2009] Randerson, J., Allen, P., Harris, J., Adam, D., Carrington, D., Hilaire, E., 2009. A complete guide to the Copenhagen climate change summit, Guardian research department, the Guardian, [online] Monday 7 December 2009 09.00 GMT Available at: http://www.guardian.co.uk/environment/interactive/2009/dec/07/copenhagen- climate-change-carbon-emissions [Accessed on 18/dec/09] Special report, 2008. China’s quest for natural resources: A ravenous dragon, the economist print edition [online] Available at: http://www.economist.com/surveys/displaystory.cfm?story_id=10795714 [Accessed 9 Jan 2009] The World Bank, 2009. Transforming rebound into recovery: A World Bank economic update on East Asia and pacific, The World Bank [online] November 2009 Available at: http://siteresources.worldbank.org/INTEAPHALFYEARLYUPDATE/Resources/550192-1257239343493 /update_nov09_fullreport.pdf [Accessed 19 Nov 2009] Vladislav, Gazeta, R., 2009. Brazil, Russia, India and China: the magnificent four Bric countries. Russia Now, [online] Published: 6:12PM BST 02 Jul 2009 Available at: http://www.telegraph.co.uk/sponsored/russianow/5724524/Brazil-Russia-India-and- China-the-magnificent-four-Bric-countries.html [Accessed 20 Nov 2009] Page | 30
  31. 31. Wade, R., 2008. Financial regime change?, New left review, [online] 53 sept oct 2008 Available at: http://www.newleftreview.org/?getpdf=NLR28701&pdflang=en [Accessed 20 Nov 2009] Winters, L. A., Yusuf, S., 2007. Dancing with Giants. [e-book] Singapore: Institute of policy studies, the world Bank Available at: (http://www-wds.worldbank.org/external/default/main? pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187 283&theSitePK=523679&entityID=000020953_20070110150325&searchMenuPK=64187283&theSite PK=523679) [Accessed: 20 Nov 2009] World Trade Report, 2009. Trade Policy Commitments and Contingency Measures Trade Policy Commitments and Contingency Measures, World Trade Organisation, [pdf] 2009 Available at: http://www.wto.org/english/res_e/booksp_e/anrep_e/world_trade_report09_e.pdf [Accessed 2 Jan 2009] Wu, Q., Zhang, Y., 2009. China’s Economic Miracle in 30 Years, Asian social science, [online] vol 4, No. 8, Aug. 2008, pp.117-123 Available at: http://ccsenet.org/journal/index.php/ass/article/viewFile/56/37 [Accessed 22 Nov 2009] Xu, M., 2005. Resolution of Non-Performing Loans in China, Glucksman Institute for Research in Securities Markets, The Leonard N. Stern School of Business [online] April 1, 2005 Available at: http://w4.stern.nyu.edu/glucksman/docs/Xu_2005.pdf [Accessed Nov 23rd 2009] Page | 31
  32. 32. Appendix (source: transforming rebound into recovery, A World Bank economic update on East Asia and pacific, November 2009, World Bank) Page | 32
  33. 33. Page | 33
  34. 34. Page | 34

×