CHINAS ECONOMIC STRUCTURE
Factors that have contributed to massive changes in Chinas economic structure
The massive changes that have been experienced in China in the past five years can be attributed to the economic reforms that were introduced in China in the 1970s coupled with its improved relations with foreign countries (Dong, 2006). Although the restructuring of the economy has contributed to economic growth, some of the challenges that the country is facing in relation to the economy include corruption, economic crimes, environmental pollution, and lack of adequate job growth and high rate of domestic savings. Historical events which have shaped Chinas relations with other nations have influenced changes in Chinas economic structure. For instance, in the seventeen and eighteenth centuries, Chinas economic development was increased by its participation in global trends through knowledge and development in science. It was during the Qing rule when the British discovered that China was a good market for opium (Hostetler, 2000).An increase in foreign trade and investment had positive impact on the economy and new technologies began to get into China (Ebrey, Walthall and Palais, 2008).In late 18th century and 19th century, foreign trade expanded in China and the flourishing of the trade led to monetary crises. The Chinese domestic textile industry was affected because of the availability of Western machine made products (Hanes and Sanello, 2004). Changes in ideological and social levels due to changes emanating from the opening up of China to foreign nations after the opium war played on important role in encouraging changes within the economic structure (Tucker, 2008). For example, the establishment of a foreign ministry in China allowed it to embrace the use of modern technology in factories, modernize the army and study the Western technology. Diplomatic relations between China and other nations over the years improved economic cooperation, a factor that has promoted rapid growth in the country.
An example of an event that has changed the Western nations opinion about China is the debate on exchange rate. In the recent years, global debate on Chinas currency exchange rate has raised the question of whether China should have its currency revalued. Growth of trade in China has played a key role in economic development. Concerns by its trading partners that the currency exchange rate provides an advantage to Chinese companies due to the value of Yuan has increased pressure on China to allow the value of its currency to float at a rate that is stronger. Currency arrangement can be a source of unfair competition hence the exchange rate debate has set the stage for discussion between the Chinese leaders, the United States and other world leaders to address the issue. The pressure for revaluation has also emanated from the central bankers and ministers for Group seven (G7) who argue that the low Chinese Yuan exchange rate provides a competitive exporting advantage to the Chinese companies (Zhang, 2004).The rapid economic growth in China has had other countries record trade surplus, putting pressure on accelerating inflation and the financial system in the countries. Chinese leaders have been encouraged to respond to the calls for RMB revaluation by embracing necessary economic reforms which can ensure that the Chinese economy rebalances. Chinas legal tender is referred to as RenMinbi (RBI) and changes in the currency for the most part of the half century have been minimal. Since 1994, the currency has remained at 8.28 Yuan to the US dollar. In July 2005, China revalued Yuan against the US dollar by 2.1 per cent. The claims that the Chinese currency has been undervalued have triggered controversial debate on the issue at a global level. One side claims that the Chinese currency is undervalued hence there is need for revaluation and floating of the currency. The proponents of this argument assert that Chinese exporters are at an advantage as compared to other international exporters due to the undervaluation of the currency. As a result, a trade deficit in countries that trade with China is experienced. Despite the pressure that has been mounting on China to address the currency issue, opponents to this argument oppose immediate revaluation and floating of the Chinese currency because it could destabilize the global economy and the international monetary system. However, economists hold the opinion that revaluing the Yuan may not solve the global trade imbalance. In the highly competitive global market, having the playing ground for all countries leveled is considered to be fundamental. Furthermore, rapid economic growth, industrialization and increased investment has increased competition among nations in trade.Therefore, the need to eliminate unfair competitions has created concern about Chinas currency. However, discussions of this debate still remains inconclusive (Yang et al, Accessed in 2010).
In July 2005, Chinas fixed currency exchange rate ended. Since then, the Yuan has had relative appreciation to the US dollar.However, this has not been satisfactory for the foreign nations especially Chinas trade competitors. China has been reluctant to act quickly about the issue due to fears that revaluing the currency exchange rate immediately may have negative impact on domestic economic conditions. This has made many officials from Western nations to be concerned about Chinas reluctance to act on the issue. Although Chinas response to the RenMinbi exchange rate debate implies that the officials are willing to float the exchange rate, they support this in controlled stages instead of introducing reforms through immediate implementation. This suits the Chinese policy that advocates for proper response to issues in stages. For example, statements by Chinese officials during the recent APEC meeting in Australia (Coolum) indicated that China does not necessarily have to respond to the issue of exchange rate as recommended by the other countries but in a manner that does not undermine economic growth and domestic industriescompanies. The challenge is how to introduce reforms and maintain the good momentum of the Chinese economic growth while at the same time implementing controllable, self-initiated and gradual reforms.
Chinas role in shaping the global economy has continued to grow. It has become a major competitor for Western nations in relation to trade and economic growth. The Western nations have taken notice of the increasingly close relations between China and Russia in the recent past. For example, in October 2009, the Russian Prime Minister Vladimir Putin made an official trip to Beijing to discuss economic matters with China. The relation between the two countries has focused on energy cooperation. China and Russia have been negotiating an agreement that would turn China into one of the largest consumers of Russian natural gas. Chinas efforts to establish international relations outside the Western nations have undermined the West dominance in trade cooperation with developing and developed nations. For example, China has been actively involved in BRIC (Brazil, Russia, India and China organization) and the Shanghai cooperation organization (SCO).These organizations have enabled China to increase its economic and political influence in foreign countries. The West view that China has great influence of global trade trends due to its industrial ability has intensified competition in the global markets. In the beginning of 2009, the global financial crisis had adverse effects on Chinas economy .The Chinese companies experienced difficulties in production and management, an issue that had some of them closed down. Furthermore, there was a decline in exports. These events slowed down economic growth in China. The Chinese government responded to the crisis through a stimulus package that has been critical in triggering economic recovery. The West acknowledges Chinas top place in global trade due to the fact that China attracts investment worth billions of dollars annually. Furthermore, the Western nations view bilateral cooperation with China as strategic in economic growth, global politics and security. Bilateral cooperation with China in science and technology, trade and investment as well as sustainable development is a mutually beneficial arrangement. Chinas location in Asia allows the West through cooperation to influence political and security issues in Asia-Pacific. Chinas urbanization and industrialization affects the global economy and preconceptions and prejudices of the West about China have attracted criticism on its policies. The global financial crisis has emphasized on the need for China and the Western nations to partner in order to encourage global economic recovery .For instance, the United States and the European Union nations demand for Chinas products declined due to the crisis. As a result, medium-size and small factories in China have been closed down. In addition, a decline in Chinas sales of electronics and automobiles as well as cutting back of steel production due to the crisis confirms how a financial crisis can have adverse effects on industrialized nations. The Chinese government has responded to the crisis by supporting the small businesses enterprises, strengthening financial supervision and regulation and increasing investment in social programmes and infrastructure. For Chinas trading partners in the West, economic cooperation with China has had positive impact on trade and job creation. The nations consider China to be vital in efforts that address financial crisis and have advocated for cooperation and coordination between nations to have the global financial system stabilized.
Chinas rare metals have for a long time accounted for over 95 per cent of the total world output (Jia, 2009). These metals include indium, tungsten and the rare earth. In addition, deposits of rare metals such as Germanium and Molybdenum in China are among the most extensive mineral deposits worldwide. In efforts to protect its resources, China has made efforts to have the rare metal deposits protected and rare metal reserve system established. Despite the high demand for the metals that continue to be experienced, China production and rare metal exports have been declining. The European Union and the United States have expressed concern over this issue and have in some cases implied that China is trying to get an unfair advantage by stockpiling the rare earth elements. For example, the Chinese officials concerns that metals mined at Bayanobo region are very important for Chinas technological future has encouraged the protection of the reserves through restricted mining .Mining of the rare metals in China has resulted to adverse effects on the environment, an issue that has attracted criticism from foreign nations about environmental destruction caused by mining. Some nations have even encouraged China to minimize levels of mining to address the environmental problem. The rare earth elements production is expected to decline in future due to the increasing demand of the metals. China is considered to be protecting its domestic supplies of precious metals but competition in trade involving rare metals has been increased by production in other countries such as Canada.
Apart from the issue of the rare metals, competition for oil by industrialized countries has raised concerns on global energy security. Chinas rapid economic growth has increased industrial growth, leading to an increase in the demand of oil. Chinas quest for oil has made it a threat to energy security of other nations as competition for the resource increases. Efforts to address the oil and energy needs have had Chinese state-owned firms receive support from the government to buy stakes in countries that have been shunned by the West. A good example is Sudan which has been shunned by the West but Chinas interest in oil has resulted to investment in the country. Chinas demand for oil has made it necessary for the West to put into place strategies that will increase energy security in future. This is because the Western nations are concerned about the Chinese government subsidized lending to state-owned companies that handle the issues of oil and energy. Chinas vital role in global economy and politics has been focused on by the media at the national and international levels. Chinas increasing demand for oil is placing at stake the West security and access to energy and oil resources (Djoumesssi, 2009).Furthermore, the Russian and Chinese state-owned oil companies have been competing with the western companies for oil in Asia and Africa. The support these companies have received from some rich members of the Organization of Petroleum Exporting (OPEC) countries has raised concerns in the West about future prospects of oil despite the West dominance in the oil industry. There are fears that these companies may take control of global oil market hence reduce the dominance of the US and European nations dominance in the oil industry. China has increased its investment in African countries that are rich in oil .For example, China has boosted economic cooperation with oil rich African countries such as Angola and Nigeria in efforts to increase its access to oil and energy resources.
In China, the media plays an important role in demanding for changes in the society and although the media is controlled by the government, it has had a strong commitment to women emancipation (Yuanjuan and Xiaoming, 2007).The media puts emphasis on the contribution that Chinese women make to social and economic development. This has increased womens participation in efforts that increase economic growth. Under the Communist rule, the political environment was characterized by socialist revolutions and political consciousness (Burgh, 2003). Because women in China are now able to participate in social and economic development, they can interact with the rest of the world. The spirit of entrepreneurship in the country was resurrected after Deng Xiaoping made the people realize that their lives could be improved by working hard. He also improved Chinas relations with foreign nations which eventually led to improvement in Sino-US relations. This has made great changes in the economic structure and the private sector in China now contributes to a large proportion of the Gross Domestic Product (Gilpin, 2001). This development has become a driving force to Chinas growth in development. Globalization has increased capital, advancement in technology and human resource development in China. This has made China one of the worlds largest destinations for foreign investment. For example, it is estimated that China European foreign direct investment in 2004 reached 60billion.
Sino-US relations have influenced the role of China in the global economy. The relations between China and the US have had stabilizing influence on the global economy and the changes in Chinas economic structure have been promoted its trade partnership with the US. The two have become major trading partners and because the US is the worlds largest economy, its trade relations with China have contributed to massive changes in Chinas economic structure. The two have shown similar interests in relation to economic growth and proliferation of nuclear weapons. The Sino-US relationship is considered to be one of the most important bilateral relationships in the world despite the fact that China and the US have had their relations damaged by disagreements in economic and political issues. For example, recently, a visit by Tibets spiritual leader Dalai Lama to the US did not go well with China. However, cooperation between the two has been promoted by the aid that the US has provided to China. Although the US has criticized China for violation of human rights in relation to Chinas internal matters, the establishment of the United States Liaison Office (USLO) in Beijing as well as embassies in Beijing and Washington has promoted diplomatic relations between China and US. The financial relationship between China and the US is expected to play a critical role in the future global economic development. The relationship has been promoted by the bilateral cooperation between the two in relation to trade and political issues (Rosecrance and Guoliang, 2009). Many American companies have already invested in China as multinational companies. Chinas role in the rapid growth of trade in the US economy has been positive but trade tensions continue to be witnessed .The tensions have been attributed to Chinas large surplus in the US market. Environmental problems in China undermine good financial relations with the US. Chinas industrial development has resulted to high levels of pollution and environmental degradation and this has made it the focus of conservation debates. For instance, poor response to environmental problems by the Chinese government had the US Exim bank refuse to provide export finance to facilitate the Three Gorges Dam projects.
To support the US-China financial relationships, a US-China Joint Economic Committee has been established .Chinas integration in the global economy has given rise to financial problems in high income countries such as the US. The US economic policy towards China advocates for economic and political liberalization in the country as well as its integration in the global financial institutions. The US considers the integration of China in the world economy and economic liberalization to be some of the critical ways through which it can pursue its policy objectives of development, democratization and reforms. Conflicts in financial matters relate to intra-industry trade, bilateral imbalances and economic-related legislations. For example, lack of effective intellectual property rights (IPR) in China has been a source of trade dispute between China and US. Although China has asserted that it is committed to strengthen its IPR laws, incidents of piracy are still high in China. The pirated commodities often find their way into the third country markets and this hurts the American exports in these markets. Economic interests of the two nations have made it necessary for them to maintain good financial relations. In the recent past, the US and China have been experiencing problems in relation to the Chinese currency .To resolve the issue, the China-US Strategic and Economic Dialogue has been engaged both parties in talks. China is now a member of the World Trade Organization and the adoption of the national treatment principle promoted competition between the private sector and state owned enterprises in the country. The interweaving of Chinas interests with those of the European Union and the US has encouraged Chinas participation in globalization. Europeans nations have benefited from growth of the Chinese market. The EU has become Chinas second largest trading partner and sectoral dialogues and agreements between the two focuses on education, environmental protection, culture and industrial policy. Meetings between European Commission and China as members of the ASEM continue to improve economic relations between the two. This has made Chinas role in global economic and political matters vital. Chinas cooperation with the neighboring nations has been motivated by the need to promote regional security and economic development with the changes in the economic structure aiming at accommodating the interests of foreign nations in the region. Furthermore, China has improved its trade relations and cooperation with the neighboring nations such as Japan, Korea Taiwan. Its role in regional economic integration in South Asia has been evident in organizations such as ASEAN3(Association of South East Asian Nations) and ASEM (Asia European Meeting). This has improved Chinas trade relations with Japan, Malaysia, Philippines, Thailand, Japan and Taiwan. Intensive economic integration has also enabled China to play a vital role in international politics. The historic rise of China has attracted the attention of the media and is currently portrayed by the media in a different way. Chinas role in the global economy has earned it China great attention from the media. The US and the other Western nations are therefore making efforts to improve trade relations with China because they acknowledge Chinas role in the global economy (Ye, 2006). Chinas rapid economic portrays a positive image in the West and its aid to developing countries especially those in Africa has won it a good name in matters of development.Furthermore,Western media now encourages good relations between China and the West due to the benefits that are derived from bilateral cooperation. Chinas role in maintaining regional security in South Asia won media attention and has attracted foreign nations to cooperate with China in addressing political matters and the threat of terrorism.
Due to the changes China has experienced in its economic structure, it has managed to participate in the economic development of developing nations especially in Africa. China economic relations with African countries are not new. It has made investments in infrastructure development in African nations such as Kenya and Tanzania. Chinas aid to Africa exceeds aid that African countries receive from western nations and this has encouraged good trade relations and cooperation with the developing countries (Smith and Davis, 2005). China has enjoyed great economic benefits from the trade relations it has established with many African countries. For example, its interest in economic resources has had China invest in Sudans oil industry and development of infrastructure. The withdrawal of Western nations in countries affected by civil war such as Sudan has been a great advantage for China. Other oil producing countries that China is working with include Nigeria and Angola.
Sino-French strategic and political dialogues have become intense and more institutionalized. France is one of the Western nations that have managed to establish close relations with China .Relations between China and the Western states has been motivated by the need for global partnership (China and the West, 2010). .Mao Zedong and De Gaulle recognized that there was need for them to free their countries from constraints imposed by a bipolar world. Military relations between China and France developed cooperation that was later undermined by the Tiananmen Massare.However, France renewed its cooperation with China in 1991.Since 2002, the relations between the Chinese and French governments have been improving (Cabestan, 2006).Beijing and Paris have continued to share similar views on issues such as promotion of multilateralism, non-proliferation of nuclear weapons, disarmament and the Taiwan issue.. France has even attempted to convince other European nations to lift the arms embargo that was imposed on China after Tiananmen. The French government recognizes that China has made improvements in the human rights issue hence the relations between the two have boosted Chinas strategic position in the global economy and politics. To develop a privileged relationship with China, France has supported its trade partnership with China in exports. China and France consider making the world plural and multi-polar important because it balances US domination on the globe and alleviates international tensions.
Historical events in China have proved that its relations with other nations have triggered massive changes in its economic structure in the past five years. China has become the second largest economy in the world after achieving rapid economic growth over a short period of time. The rise of China in the global economy has increased its significance in global politics, regional security and economic development of South East Asia. China has made efforts to improve its image in the West despite the criticism it receives from the nations about violation of human rights Although China has managed to establish diplomatic relations with other nations, difference in views with other countries has led to hostility between China and the involved countries. The relationship between China and other countries has no doubt played a vital role in Chinas economic development.
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