China: Issues in Global Business & Strategic Concepts

Executive Summery

China is the 2^nd largest economy in the world with 14.8% of the world economy and is one of the most powerful countries in the world.

The main purpose of this report is to identify China’s recent development, such as FDI, Economic Integration, Poverty eradication, Ageing population ect….. how its contribution to the world economy. And then critically evaluate the three key points of recent development.

INTRODUCTION

China is the 4^th largest country in the world by land area and Beijing is the capital of China. It is the one of the most powerful country in the world.

The Chinese government is one of the most important actors in international affairs today. China’s global economic and diplomatic presence is challenging the earlier dominance by the Western powers.

China is only second to America in terms of economy in the world by nominal GDP. However, China is the strongest economy on a purchasing power basis. Since China opened its ‘free trade’ policy in early 1990s and its ease of trade legislations that leading to membership of WTO in 2001, have seen powerhouse economy, which is currently the the third largest exporter, after the U.S and Germany.

China play a massive role in controlling many global markets such as oil, copper, iron, aluminium and steel etc. With its massive indoctrination, China has become a leading consumer of major commodities, such as oil, steel behind only the US in its consumption. Further China has become the third largest stock of FDI holder globally behind only the US & UK. Becoming a member of WTO in 2001 has resulted in adopting greater trade and financial liberalisation, which has led then China becoming a leading destination for inward FDI in recent years.

Another considerable development is China’s outward investment. Several years after the ‘free trade’ policy in 1990s, China has permitted outward FDI. However these amounts were small relative to the inflow of FDI.

Recent Developments in China and China’s contribution to the world economy.

China’s development is acclaimed by the whole world. Its developments are not only the economic aspect, foreign affairs as well. China is a relatively young country compared with other countries.

In the last few years, China had a extraordinary economic development and has come to play an increasingly important role in our world economy.

Infrastructure development

Undoubtly China is the most populated country in the world and within a very short period of time, it started experiacing unprecedented urbanization. Lots of people chose to settle close to urban cities. But more than up-lifting prosperity and well-being of the people, during the past decades, urbanization in China has centred on land development through industrialization and investment. Liveable cities are not just those with magnificent buildings and infrastructure; they are great places where people want to live.

After Beijing, Shanghai, Gaungzhou, Hangzhou were China’s main cities that become urbanized rapidly. Capacity of metro network of these cities were expanded very rapidly in the past two decades.The substantial change in accessibility induced by the metro system in such a short period is parallel with massive increases in population, land use intensification and urban diversification.

FDI

Faster and greater development of a country mainly depends on Foreign Direct Investment (FDI) thats invests in production facilities. It is specially a paramount important factory for developing countries. Not only that FDI adds resources and capital for a country but also transferring technology, skills, innovations and knowledge would be far more important for getting in to international market networks.

China being the largest and the fastest growing domestic market in the world, many foreign companies are investing in China to manufacture or import and sell in domestic market in China. It is obviously largest populated country in the world and many companies see the potential in the market.

According World Trade Organisation(WTO) accession agreements, China needs to provide foreign companies investing in the country with full access to the domestic market. Therefore, WTO accession will unleash foreign companies unsatisfied demand for investment opportunities in China. In fact China has already become the largest recipient of FDI among all developing nations and China’s WTO accession will further encourage the inflow of FDI into China. The Chinese economics policy aimed at attracting FDI in specifically designated export sectors has been largely successful in shifting their comparative advantage from low tech products to medium and high technology goods.

Belt & Road

Chinese President Xi Jinping Announced in 2013, the Silk Road initiative, also known as China’s “Belt and Road” initiative. Together , these initiatives represent a Chinese framework for organizing international economic development, primarily in Eurasia. Infrastructure, Energy & Transportation are the main focus of “Belt and Road’. This Silk Road initiative originated from an ancient land route across Europe and Asia that connected traders and travellers from regions just like the China, Persia, and also the Roman empire.

With the Belt & Road China now aims to connect all underdeveloped countries to Europe through Central Asia on land. This route has been dubbed the Silk Road Economic Belt. The second stage of this project is to make a twenty first Century Maritime Silk Road connecting the fast growing South-East Asian region to China’s southern provinces through ports and railway. This has already been initiated.

Economic Integration

Economic integration is an agreement that two regions or countries embark in to by reducing or eliminating trade barriers and expand trading between two regions. This could be done by setting out new financial and monetary policies. The aim of economic integration is to cut back cost for each customers and producers and to extend trade between the countries concerned within the agreement.

China’s One Belt One Road initiative’s foremost aim is deep economic integration. The program envisages the revivification of old trading routes with a continental Silk Road Economic Belt and twenty first century Maritime Silk Road. Despite its awkward name, the initiative could be a well-conceived manner for China to attach its economy to the rest of the world, with an early emphasis on links towards Europe through the remainder of Asia.

Poverty Eradication

Although China has made huge economic progresses in recent decades, poverty is still a major issue on the agenda for rural China. From 1981 to 2004, the absolute number of poor people in China fell by 500 million, accounting for 70% of global poverty reduction. The basic production and living conditions of the poor have improved significantly. According to international poverty standards, China still has the world’s second largest population of poor people.

Tourism

Travel and tourism has become a strategic industry in China’s development toward a socialist market economy. The country still investigate better ways of developing a strong travel and tourism industry that can compete successfully in regional and global markets. China handle many opportunities and challenges in developing its tourism in this new century, although they may be quite different from those in the decade before. According to the forecast by WTO, China will be the top international destination country in the world with about 137 million international arrivals by the year 2020, and with over 1 million outbound visitors a year.

Three key priorities for China in the next 2-3 years

Infrastructure Development

China’s urbanization over the last three decades has been unprecedented in human history: 260 million migrants have moved to cities, supporting rapid economic growth and development. China’s urbanisation rate has been increasing by about one percentage point per year, from 26% in 1990 to 56.1% in 2015. over the next 30 years, an additional 300 million Chinese are likely to move to cities. This unprecedented urbanization wave has not only changed the lives of hundreds of millions and contributed to China’s amazing 10% annual economic growth rate in the past two decades, but modified the world’s political, economic and environmental landscapes. The introduction of the “Five Year Plan” by the Chinese government in the early 1950s signified a landmark shift in its development strategy towards a regular five year planning system. One important focus of the “Five Year Plan” series is to make infrastructure, particularly transport infrastructure, available to both core regions and marginal regions, and integrate a variety of socialist-based and Capitalism-based regimes into a local and regional economic development tide. However, inherent tension rises as infrastructure, including railway and airport network improvements, help to raise spatial disparities between metropolitan and periphery regions.

Infrastructure indirectly increases growth of China. Better access to infrastructural facilities means that workers can get to their jobs more easily and perform their job related tasks more rapidly and other positive externalities induced by public infrastructure, including increased competitiveness, greater regional and international trade, expanded FDI and finally higher profitability of domestic and foreign investment flows which raises investment ratios and boosts growth in per capita income.

Air pollution is a serious urban environmental problem because of its negative effects on human health, plant growth, cultural relics and visibility.

Poverty Eradication

Recent years have witnessed increasing interest in the relationship between economic development and poverty. An important reason for this has been the establishment of the Millennium Development Goals, which have set poverty reduction as a fundamental objective of development. The main factor explaining the salience of poverty reduction as a development goal is, in part, ethical. It is indeed widely considered ethically unacceptable that a large part of the world population still does not have the resources to achieve a basic level of living standards in an otherwise increasingly affluent world.

China’s main mission between 2011 and 2020 is to help people move out of poverty and improve their living standards more rapidly, improve ecological environment, enhance development capacity and narrow development gaps.

The world bank (2015) also presents that economic growth’s inclusiveness (including jobs and a social contract) and its sustainability (including social, fiscal and environmental dimensions) are the key elements of poverty reduction. Thus, for developing countries, investing I human capital , establishing efficient social safety nets and emphasizing environmental sustainability are the main challenges to achieving poor economic growth. The number one political and social objectives of a government, be it local, regional or national is to reduce poverty. Even though a combination of economic growth, globalization and s new technologies has accelerated the reduction of poverty in recent years, the problem is far from being resolved.

Tourism

Tourism in China has gone through significant changes. From the start in the Maoist period, when tourism was solely the reserve of higher political officials, it has grown tremendously in the last three decades. In the initial period of tourism development the government sought to encourage inbound tourism and inward capital investment while at the same time seeking to privatise assets such as hotels in a wish to upgrade existing hotels and build new hotels to international standards.

Domestic tourism itself accounts for 65% of all tourism associated with China and dwarfs the two other components of inbound foreign tourist and outbound Chinese tourists. Outbound tourists now account for about 65 million passenger movements , and the number of inbound tourist is approximately the same number. Impressive though these numbers are , of necessity they do not tell the complete story of tourism development within China. However , it is clear that Chinese tourism is coming of age , and increasingly China is not only a recipient of foreign investment but is now seeking to invest in tourism overseas.

Conclusion

When we look at the three of recent development , it is possible for China to maintain dynamic growth for another two or three decades due to the advantage of technological backwardness. However, China needs to complete the transition from the planned economy to a market economy, adopt a comparative-advantage following approach to its developing strategy, and integrate fully with the global economy. If China can do so, the growth of the Chinese economy will make a great contribution to the improvement of welfare of the Chinese people and people in other parts of the world as well.

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