1997 Asian Financial Crisis and China
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As being one of the few survivors of the 1997 Asian financial crisis, People’s Republic of China presents an impressive economic growth receiving global attention in the last two decades. It has economically continued to have an annual growth of 9 percent for more than thirty years (Lin, 2012) and maintained an average four times better than the OECD countries since 2000 (Singh Puri, 2010). Together with the other BRICS (Brazil, Russia, India, China, and South Africa) countries, excluding the Russian Federation, China has led to a significant change transferring the “economic centre of gravity” (Singh Puri, 2010, p.7) to the developing world. Affected by this rapid transformation challenging the decades-long economic tradition where the whole economic system dominated by the North (mainly the OECD countries), South-South cooperation currently plays an important role in the global economic relations. Billions US dollars of Chinese assistance is not only limited to the economic development but also a variety of issues from environmental sustainability to technological advancement. Being the exemplar of the Southern development, China has also increased its sphere of influence throughout the world in enhancing South-South trade activities and increasing investment flows. “South-South trade has grown on an average by 13 percent every year since 1995, accounting for 20 percent of world trade in 2007 and Asia accounting for over 75 percent of such trade” (Singh Puri, 2010, p.8). This new phenomenon has certainly started to change up to date views on development and it picks up the pace day by day. Developing countries, having increased their technological knowledge, are catching up with the North so fast that they are actually able to compete. Furthermore, this cooperation is tearing down the path of development offered by the Modernisation theory and decreasing the public support for international financial institutions that worked hard to change the destiny of the developing world. However, the question of that whether the South-South rapprochement will lead to political and economic emancipation of the developing world in general, solely depends on how we understand the word “emancipation” and in which ways the rise of China contributes to this phenomenon. This paper will first evaluate the different aspects of Chinese involvement in the South and then proceed with the concept of emancipation.
First of all, there is no doubt that China is one of the most important economic partners of the developing world, especially in Africa. The Western domination in the region has lost its monopoly since China, and following that India and Brazil, has started excessively engaging in trade activities. By increasing the trade opportunities in the South, there is now the fact that the economies of the developing world flourish continuously thanks to Chinese assistance. The BRICS countries are now regarded as the leading suppliers of foreign direct investment (FDI) among emerging investor countries since flows from these economies accounts for 145 billion US Dollars in 2012 which is equal to 10 per cent of the world total (UNCTAD, 2013). The fast increase in the numbers of FDI going to the developing world from the emerging economies further changes the nature of the South-South cooperation by expanding it beyond the simple trade relationship. China and India constituting more than one-fourth of the world population demand most of the world’s commodities and raw materials which are supplied by the developing world. As national purchasing power increase, China has started to replace major importers of the certain products that are produced in the South. To illustrate, “China has displaced the European Union as the main destination of Brazilian soybean exports, its market share rising from 15% in 2000 to 53% in 2009” (Brown-Lima et al., 2010). This will eventually raise the numbers of the land to be cultivated, the seeds to be sold, and most importantly the job opportunities. Furthermore, such demand will also increase the price of the products supplied and boost the economies of the developing countries. Along with this positive trade relationship, China, together with the others, are now becoming more and more influential in shaping the global political economy. The economic rise of these emerging powers increases the participation and the representation of the developing countries in the international economic organizations such as the World Bank; hence, the South-centric economic policies are being developed more, comparing to past, reflecting the necessities of the multi-polar global economy in which developing countries play a significant role. Moreover, as being one of the major investors in Africa and the rest of the developing world, China follows a pattern that most of the investment takes place in infrastructure sector targeting telecommunications, construction, transport, and power plants. By this way, it directly contributes to the development of the African countries which will be able to maintain their own growth in the future. These projects are strategically located where the economic activities are taking place like the roads connecting the oil mills to the major cities and ports. In the not very long-run, the accumulation of wealth will happen and subsidise the GNIs (Gross National Income) of the host countries. However, the Chinese involvement in Africa creates an anomaly for the mainstream theories of the FDI – especially for the “eclectic paradigm” of Dunning (1980) – since the continent has not so much to offer for MNCs (Multinational corporations) to invest. But the Chinese investment arrives at Africa with a diplomatic package from Beijing, which includes debt cancellation, development assistance with favourable conditions, barrier-free access to Chinese markets (Atli, 2013) and so on which intensely helps African states and enables them to enjoy higher growth rates (Woods, 2008). This must be considered as an accomplishment that has been placed in the Western rhetoric for a long time but could never be achieved. At the end of the day, in terms of economic development, China’s economic involvement in the developing world certainly has too many advantages for both of the parties. This idea of mutual benefit is at the core of the South-South cooperation which pulls the centre of the world economy to the South day by day.
Secondly, by examining the aid giving behaviour of the People’s Republic of China, it would be accurate to say that the developing world is highly benefiting from emerging powers’ ambition to challenge the established forms of international assistance. In this sense, focus on Sino-African relations would serve best to clarify the aforementioned assumption. Aid giving has always been seen as an instrument of national interest and, at a broader sense, a tool of global politics. None of the political theories ignores or denies this fact but they often criticise and try to provide solutions to the problems coming with such understanding. On the other hand, while there is a debate going on the matter, there appeared a couple of new countries such as China, India, Brazil, and Turkey, changing, challenging, and questioning the dynamics of the aid giving phenomenon in Africa. What China and India share in their aid programs from 1960s onwards is “the principle of equality and mutual benefit” which makes this soft power involvement more desired and respectable in the lands where people suffered so much from inequalities and exploitation in the past. Another feature making emerging donor aid more efficient is lying under a key word of aid jargon which is “bilateralism”. Multiplicity has long been encouraged by the West to manage the relations between donors having similar interests; however, it produces lots of problems in terms of coordination, excessive bureaucracies, and transaction costs which are paralysing aid even before the arrival at its destination. Under intensified Western driven economic conditionalities promoting neoliberal values and long chain of bureaucracies, African aid receiving states are losing more after the arrival of aid. In this regard, direct diplomacy and communication simply increases the effectiveness of the aid coming from emerging donors. Chinese aid given to Africa is also purified of the political interference as China itself being reluctant of foreign meddling. Without political interruption, sector specific approach and fast involvement directed to the needs provide an environment in which African countries quickly see the material results of the aid given. In this way, China secures its position in the continent by gaining hearts and minds of the African people. The Western aid not giving any compromises for the pursuit of democracy building is lacking both political and public support since it requires a very long-term commitment to see the outcome. Democratisation process caries some inherited barriers in African states since the required political institutions, economic development, and social capital are not in existence. Furthermore, in Africa, the political conditionalities are avoided by several means with minimum implementation and continuous aid flows; in addition, donor countries are very likely to leave behind their ultimate desire to democratise a state when the recipient states’ rulers address the political interests of the donors more than the democracy building (Brown, 2005). Although such problems do not occur in every case, the case differentiation becomes apparent seeing that the state tradition has various impacts on the transition processes. As a result, it is important for Western countries to take socio-economic differences into consideration while trying to create a change via foreign aid. Moreover, offering low interest loans, China’s aid giving behaviour avoids further indebtedness of the receiving countries while the Bretton Woods Institutions are constantly implementing Structural Adjustment Programs (SAPs) on developing countries. What makes China an indispensible actor in Africa and the rest of the world is mainly its being respectful of the sovereignty of the developing nations and provision of a demand-driven assistance. However, the realist approach advocating that the driving force of the aid giving is always the national interest of the donor also applies to Chinese case especially when it comes to the African votes that China needs in the UN General Assembly for a variety of national concerns from Tibet to One-China policy (Cheru and Obi, 2010).
Thirdly, the Chinese developmental model poses a challenge to every aspect of the neoliberal Modernisation theory which could not prove to be successful anywhere but the Eastern Europe, Japan and Korea (Republic of) in Asia, and Chile in Latin America. All successful examples are exclusively supported by the United States because of their geopolitical importance for the American interest. Chinese way appeals more to the developing world since it has followed an independent path and throughout the history all developmental programs are implemented by the Western donors and their institutions in developing countries. China does not share any colonial past with the developing countries, most of which have been colonised by the Western countries at some point in the history. This fact reveals a trust for China and its way of economic development. Furthermore, all members of BRICS are still considered as developing countries which means that they are still struggling with social, political, and economic problems although they play an important role in the global economic governance. As a result, South-South cooperation in terms of developmental goals takes place in an atmosphere were all parties can empathise with the others. Such understanding enables the South to realize that they can be more flexible in terms of certain development objectives such as pollution – as China does – and follow their independent way by prioritising what they need first. Since the conditionalities implemented formerly did not lead to the advancement of the Southern economies, a path free from conditionalites becomes enticing for the developing countries. These changes unquestionably challenge the established norms of the global economic order in which doctrines of the Washington Consensus has always been in domination. Reasserting the significance of state involvement in the development process (Ban and Blyth, 2013), Chinese version of the capitalism protects the nation from neoliberal exploitation and disables transnational corporations (TNCs) to take all the revenue from the sectors such as mining or petroleum industry. Moreover, “the BRICs do not seem to be willing to converge with the liberal internationalism of the G7 as they remain wedded to a realist view of national sovereignty and international institutions” (Laidi, 2012).
Lastly, all of the above mentioned arguments are going to contribute to the purpose of this paper when they are thought together with the concept of emancipation. Emancipation is to be understood as either the liberation from the already established tradition or the total sense of freedom. So far, this paper has argued in which ways the rise of China has affected the liberation of the South from the dominance of the Northern centric international political economy. China’s cooperation with the rest of the developing world is proven to be beneficial for the future of the South in general. By possessing a great challenge for the Washington Consensus and the Bretton Woods institution, China’s independent path of economic development has inspired the Southern nations for their prospective emancipation that is to be earned all together. However, emancipation in the second sense is highly controversial for this case. Although, China’s involvement in the South is in full respect for the sovereignty of the countries, it should be analysed critically as well. By advertising its own developmental model, China encourages the developing countries to bypass good governance and environmental standards (Woods, 2008). Furthermore, it takes the advantage of the non-intervention principle and uses it as an excuse for its ever growing arms sales to Africa. China’s aid in the infrastructure and resource exploration projects is contracted in the benefit of Chinese firms – most of the time SOEs (state owned enterprises) or government backed private companies –temporarily holding the rights of operation in most profitable sectors such as petroleum, natural gas, or mineral industries. This is unfortunately nothing but exploitation by a new actor that the South is trying to escape from. In addition, the Chinese labour and workforce movement to Africa disregards the importance of creating job opportunities (Najam and Thrasher, 2012) for a sustainable developmental programme. Cheru and Obi argues that the result of “China’s involvement in Africa could turn out to be neo-colonialism by invitation” (2010, p.2) in the absence of purposeful and proactive African resistance.
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