Effects of Globalisation on Economic Growth Essay

Discuss the effects of globalisation on economic growth and the quality of life in the Chinese economy. Globalisation is the progression towards a growing assimilation between different countries in order to gain a single world market. It strongly encourages overseas trade, the removal or the reduction of trade barriers to increase economic growth and development. Globalisation ultimately presents to everyone a world which is increasingly liberalized and market-orientated. Associated with globalisation there is increased and intensified competition and greater interdependence among countries. In numerous ways China has taken this opportunity and used it to its full advantage which has enhanced economic growth and significantly improved the quality of life. China’s influence in the world economy was minimal until the late 1980’s but we are now seeing China being one of the most independent countries and leading the manufacturing producing market. China started with a fragile economy with minimal infrastructure from frequent revolutions and invasions in 1949. In the early 1980’s, China’s economy was still extremely weak as a result of its inward looking government system of a socialist planned economy under the Mao government. This resulted in living standards below world averages and economic growth at nearly zero. China has risen from the edge of economic obscurity to lead the world in terms of economic growth, and this is done is just over a quarter of a decade. The People’s Republic of China has transformed from a planned economy into a socialist market economy and is now the world’s second largest economy to the USA being number one, by nominal GDP at $7.3 trillion and by purchasing power parity (PPP). â€Å"Pay attention to what’s going on in China. â€Å" – Jeff Mbanga – The Observer. China is the world’s most rapidly growing economy with their growth rates averaging 10% in the past 30 years. In the past decades there has been a significant increase in international trading and investments flows due to globalisation. This has led to high levels of economic growth. It was unusual in the 2007-08 Global Financial crisis how an industry was maintaining an average economic growth rate of 8.5% per year. In addition to  this China’s trade with other nations has expanded 16 times more. This is occurring due to their extremely low prices which are highly competitive and pleasing to the developed western world. Although with the recent European Sovereign debt crisis â€Å"Growth in China has slowed, but to a rate that remains the envy of the world, while Chinese industry continues its march onto the world stage.†- Time magazine. China’s financial system which is often regulated has promptly expanded due to monetary policy becoming increasingly fundamental to its complete economic policy as a result of globalisation. The outcome of this has resulted in banks distributing an increase in finance to its enterprises for investment, deposits for liquidity and also loaning money to the government which maybe then reallocated in providing infrastructure. The most significant result of globalisation has been the development of China’s import sector and has allowed the nation to become the second largest exporting economy in the world. The large export sector of extremely low cost goods and services has manipulated the trade currents of the world. Through China’s growth it has developed a stable-body of trading partnerships with raw material producers. An example of this is with Australia where 40% value of all products exported is worth around $40 billion. China is buying these raw materials to accommodate its largely growing urban-mega-cities and industries to produce new goods and create more low-cost goods and a more intensifying complex form of trade. Through constant trading globally, this has increased the aggregate demand. As of 2011 foreign direct investment (FDI) has exceeded from $US.100 billion in 2010 to $US.116.10 billion. This has occurred through the private and public growth in mining, construction trade and finance. This globalisation impact has also seen a shift in the population from rural areas to urbanised cities. This has led to a decrease in agricultural produce and an astonishing increase in industrial goods and services and alleviated a substantial amount of China’s absolute poverty. The Chinese government has embraced a series of strategic policies to address the challenge of economic globalization. These strategies started in 1978 after Chairman Mao’s self-sufficient economy plan. China began employing several reform strategies to enhance growth. This included stimulating the agricultural sector to allow them to sell a percentage on the free trade market yet hold a competitive position. In addition to this  citizens were given money incentives and tax breaks in order to start new businesses and allocated regions were created to encourage high levels of investment, increase exports and increase technology levels. Other reform strategies included Deng Xiaoping’s the rearrangement of the economic structure by increasing the development of the high technology sector and moving away from the agricultural sector; transformation of the pattern of economic growth by increasing power in IT education and sustainable development as well as additional progress of the outward-oriented economy by implementing â€Å"come in† and â€Å"go out† strategies. This is where the government encourages its enterprises to invest overseas. This has been demonstrated in Australia where Chinese investors have bought farming land and are now operating that land and are taking that product back to China. Also, the government consolidated reform in State Owned enterprises ( SOEs) and government administration with a view to establish a governing mechanism in compliance with international rules and practices. These policies noticeably ease China’s integration into the global economy and have proven effective as of 2010 where almost 50% of the total population was urbanised. It took only 22 years to increase from 17.9% to 39.1%; this was the same increase which took Britain 120 years. Similar to the â€Å"come in, go out† strategy. Chinas government has applied the promotion of overseas direct investment (ODI) allowing them to invest in the large pool of foreign currency. This strategy is fulfilling their economic growth mentality and development strategies. It was 2000 when China forwarded the ‘Go Global’ strategy which encouraged firms to invest overseas. Its objective is to utilise foreign exchange reserves to purchase or buy shares in foreign firms that seem profitable. Rather than building the foundations of investment in domestic firms, China has wanted to promote the development of internationally recognized brands such a Lenovo Group Limited which has its operational headquarters in Morrisville, North Carolina, USA and its registered office in Hong Kong. These reform strategies saw an upturn in economic growth rates to 9.8% annual average over the following years with this growth almost doubled from the pre-reform 5.3% shown in Figure 1. This created an influx of employment and income thus increasing the overall living standards of the economy. Foreign Direct Investment utilisation (come in and go out strategy) saw an increase of $2 billion to $92 Billion from  1985-2008 shown in figure 2. By utilising the globalisation transformation it allowed China to become exposed to global markets and increase trade and the profits made from globalisation. Figure 1. Economic development recognises both a quantitative growth measurement and important qualitative measures. A developing country is a nation with a low living standard, undeveloped industrial base and low Human Development Index. For a country to be classified as developed they have to fill a certain criteria. This includes a number of areas such as the GDP per capita, Safe water, Malnutrition, the number of poverty related deaths (malaria), Infant mortality and life expectancy. The Chinese government has grown concerns in these specific areas. In China the Human Development Index (HDI) has risen from 0.404 in 1980 to 0.682 in 2011. They are ranked 101st out of 187 countries with comparable data. The HDI has been on a steady increase since then, in 1990; 0.490 and 2000; 0.588. This shows that their overall standards of living have improved; other statistics show that their life expectancy: 73.5 years and at 0.843 out of 1; Education is at 0.623 with a compulsory 7.5 years of schooling whilst Australia is 0.981 with 12 years of schooling. This is due to policies similar to the reform of the health care system in 2005 where only 20% of the health care services would be in rural areas. This has seen China invest US $2.4 billion to rebuild rural medical centres composing of village clinics and hospitals. With relations to educational spending China has increased its spending by 20% in consecutive years since 1999 and now exceeds $100 billion. The reason China is outlaying an excessive amount of money it will build a more stable and productive population by producing skilled workers. This investment has seen a relief of absolute poverty declining 25% in rural areas. Shown in figure 3, the GDP per capita has increased drastically in 18 years which has allowed the standard of living to increase. China is still a developing country. Its service sector is relatively small and weak in comparison to its other sectors in the country and its counterparts in other countries. In addition to this in 2006 the eastern region covering 10% of  the land accounted for 55.7% of China’s GDP. Due to this uneven distribution of income this will decrease standards of living in other areas and major class seperation. â€Å"China has long been criticised for its incredibly uneven distribution of wealth.† Figure 4 highlights the success of the stimulating strategies as leading economies such as Germany and the US both experienced negative growth over the course of the Global financial crisis. The major cause for this is due to the Chinese government artifically stabilising the exchange rate to constantly produce cheap products. It was at this time that these cheap products continued to be sold to larger countries to fulfill their aggregate demand and thus China continued developing.Though with the US and Europe are in a substantial amount of debt, this has slowed the production with the Chinese production. It is said, if â€Å"China is to sneeze the whole world will catch a cold† Figure 3↑ Figure 4↓ With the extensive economic growth and the development the environment has been completely neglected as China concerntrates on its escalation in the economic world. Economic development officials often overlook envoronmental pollution, worker’s health and safety and simple public health in priority to enhance the living conditions of those in the area. The impact which china has had on its environment is illustrated through the excessive quantity of air pollution with 1% of the 500million; and growing, people who inhabit the cities. Although the breathing air is deemed safe by the European Union (EU), 1/3 of children are suffering from elevated blood levels as a result of the air quality. (Refer to picture 1.)Picture 1shows smog which is serious harm to health. It is a combination between smoke and fog and can inflame breathing passages, decrease the lung’s working capabilities, cause shortness of breth and pains whilst breathing. Regardless of these statistics China has spent $34.6 billion on clean energy and are now the leading investor of renewable technology. China is also the number one producer of carbon dioxide emitter and with conjunction to inda being the 3rd largest they account for 30% of the world’s emmisions. In conclusion globalisation is based upon nations becoming more integrated and reducing the trade barriers between nations. Although by increasing trade  this makes some countries dependent upon imports to create revenue by consumer consumption rather than utilising their comparative advantage. While by being so interdependent upon each other this will allow economic changes to ripple through and impact on other countries. Globalisation has obviously encouraged the majority of China’s accomplishments in assimilating into the global economy. The policies implemented have flowed through the economy and is showing signs of economic growth and quality of life in a number of areas. These policies will continue to promote economic growth not only for the temporary fixations but will be drawn-out for years to come. Through constructive motivation China is now moving towards clean energy usage, environmental sustainability and increasing the health of the nation and will soon be labelled a developed economy. 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