FREE ESSAY ON CHINESE ECONOMIC STRATEGIES

CHINESE ECONOMIC STRATEGIES

Current Chinese economic strategies have blast the country into the world economy at full
speed. While China's economy had been growing at nine percent a year over the past ten
years, which led to China's gross domestic product to rise to the seventh in the world.
However, with 1.3 billion people China remains a market with great potential for U.S.
exporters. U.S. exports to China grew a meager two percent in 1996, but increased by 6.9
percent in 1997. The strongest growth in U.S. exports to China was in the services
sector, which showed a positive trade balance in 1997 of $1.1 billion.
In 1979 the Chinese have implemented numerous economic and political tactics to open the
Chinese marketplace to the rest of the world. Just a few areas China's government is
addressing are agricultural technology, the medical market, and infrastructures, like
telecommunications, transportation, and the construction industry. Chinese reform
measures even anticipated the rush of foreign investment by opening newly expanded
industries to out-of-country investors. Effects of this sudden change in economic
strategy by a world power can be felt by practically every nation of the globe involved
in international trade. The change in the amount of imports and exports to and from China
will increase the demand on countless markets, from automobile, to petrochemical, to
pharmaceuticals, and optical fiber. Also, with all the foreign investment China is
receiving, the socialistic republic will only grow more and more interdependent upon the
world economy. However, the impressive growth rate of China's economy is not without its
shortcomings. Problems such as inflation and inefficient state-owned enterprises plague
the rise of the Chinese economy.
In spite of this, China remains an extremely difficult market with significant barriers
to sales by U.S. firms. While U.S. exports to China grew, China's exports to the U.S.
grew even faster. The 1997 U.S. trade deficit with China grew by $10.2 billion to almost
$50 billion, a fifty percent increase since 1995. The Chinese government will attempt to
both increase exports and domestic consumption to mitigate the slowdown in the near term.
Large infrastructure spending programs are planned to absorb some of the laid off
workers, which will result from reform efforts and the slowdown.
The main goal for China's modern foreign policies is the development of the Chinese
infrastructure. The significance of improved communication and transportation cannot be
over-stressed. Economically, enhanced means of communication and transportation allows
more expedient supply and demand scheduling. Two of the latest Chinese reform measures to
aid in the development of the country are the Provisional Regulations on Direction Guide
to Foreign Investment and the Catalogue Guiding Foreign investment in China. Both these
policies place specific industries including telecommunications, machinery, and
electronics on top priority. Funding for these projects come from foreign investments and
appropriations from the Chinese government in the form of grant financing, and
legislative or administrative support. 
Investment is guided to certain sectors and state-owned enterprises in many areas are
protected from competition by law, regulation, and/or custom. China's leaders seek to
reserve for state-owned firms leading roles in almost every key industry, from steel, to
telecommunications, to consumer goods. Actual U.S. investment in China has grown every
year since 1992, to reach a total of $14.1 billion, which makes the U.S. the largest
overseas investor in China (although Hong Kong and Taiwan businesspeople are still by far
the leading foreign investors in China).
Another example of the Chinese emphasis on industrial based growth is the far-reaching
goal of having just fewer than 100 million telecommunication lines by the year 2000.
China's Central Ministry of Posts and Communication said that in order to complete this
major task China would enlist the aid of major overseas suppliers and create
manufacturing plants within the nation. AT&T, Motorola, Northern Telecom, Alcatel,
Erricsson, NEC, and Siemens are just a handful of the multinational companies, which hold
a considerable share of the Chinese telecom market, proving that China is becoming a
party to global interdependence.
The Chinese pharmaceutical market, much like Chinese industrial markets, is experiencing
rapid growth due to reforms in China's economic strategy. The nation's government has
decided to lower import tariffs and remove the necessity of an import license to bring
pharmaceuticals into the country. Also, patented foreign drugs, such as Tylenol, are now
being protected from counterfeiting by administrative action. The pharmaceutical market's
growth is another example of the economic progress China has made.
In March 1998 meeting of the National People's Congress (NPC) and the elevation of Zhu
Rongji to the premiership also marked the beginning of Chinese central government
reorganization and downsizing. A decrease in the number of ministries from 41 to 29 was a
much-anticipated development at the March Congress, with many of the former industrial
ministries becoming bureaus under the State Economic and Trade Commission (SETC). The
stated purpose of the reorganization is to separate the business functions of the old
Ministries from their continuing regulatory responsibilities.
Even after accounting for all the economic benefits recognized by the world, the Chinese
still come out as the country with the most gains. However, there are more motives behind
China's market reforms than just purely economic. On the political front, China is fast
becoming an integral part of international organizations. The Chinese government is
making a conscious effort to reenter GATT (the General Agreement on Tariffs and Trade),
realizing the importance of creating a favorable trading status among foreign nations.
Slowing this progress, the 124 nation strong trade bloc has requested that numerous
conditions must be met by China before the nation can become a member of GATT once again.
Several of these provisions are the elimination of import prohibitions, restrictive
licensing requirements and other controls or restrictions; lifting of all restrictions on
access to foreign exchange and full convertibility of the Chinese currency. Other
important key themes behind China's Open-Door policies are economic and technological
cooperation with the West, and that China's government no longer supports Third World
revolution. Instead, China realizes that cooperation with developing countries would be
far more practical.
Although Chinese foreign policy is aimed at opening the nation's entire economy to the
world, it neglects the agricultural market almost entirely, with the exception of
technical contracts. These contracts are designed to improve the transfer of technologies
to improve crop yields. Technical contracts are made between farmers and village economic
cooperatives and a wide variety of offices and technical personnel from different
administrative levels. The funding for the technology used by the agricultural industry
can be traced to extension stations of political parties, finance bureaus, or local
insurance company. Since the groups funding technical contracts are nothing more than
investors, a portion of the profits from increased production due to the technological
advancements are returned to these groups. However, the technology providers also bear
the risk of investors, if output and economic returns can't reach prescribed figures, the
extension administrations have to make up the losses.
Like all good things, China's formidable economic growth has its downsides. A few of
these detriments are inflation, an under-aided agricultural market, government
inefficiency, and geographically uneven development. High inflation, caused by a demand
for more exchange medium on the Chinese market is causing Chinese currency to depreciate
relative to other national currencies. A lack of emphasis on the agricultural market is
causing that sector of the Chinese economy to fall behind, and soon the supply of
agricultural products will fall below the demand for these goods, resulting in a
shortage.
Another problem is the inefficiency of large, state-owned production facilities can be
explained by excess bureaucratic red tape and corruption. Finally, there has been an
uneven distribution of development between the land-locked, western section of China and
the industrialized east coast, consequently causing ineffective land use.
China has quickly become a world leader in trade and will only increase in
importance to the global economy. These facts are proven with China's current economic
statistics growing at over nine percent per year, and economists' projections of the
nation's future -- China will double its gross domestic product of the year 2000 in the
year 2010. The way the Chinese government achieved these impressive economic figures are
through a thorough renovation of Chinese trade policies. Reform measures in the country
range from reduced trade barriers and technical contracts for agriculture, to
infrastructure investment policies and improved standards for pharmaceutical products.
However, stemming from China's economic growth are dilemmas such as inflation and uneven
development of the country.
On July 1, 1997, Hong Kong reverted to Chinese sovereignty after over 150 years under
British rule. The Sino-British Joint Declaration, signed in 1984, and the Basic Law,
passed by China's National People's Congress in 1990, form the legal basis for China's
One Country, Two Systems guarantees for the Hong Kong Special Administrative Region (SAR)
of China. These documents, which guarantee a high degree of autonomy for the HKSAR except
in matters relating to foreign affairs and defense, have to date been scrupulously
observed. So far, Beijing has honored its commitments that the Hong Kong people will
continue to enjoy the social and economic systems, life-style, and rights and freedoms
that they previously enjoyed. The HKSAR continues to enjoy executive, legislative, and
independent judicial power. A year after the handover, the problems facing Hong Kong
relate not to the return to Chinese sovereignty, but rather to the financial and economic
crisis that has affected the entire Asian region. Unemployment has risen to 4.2%, a
fourteen-year high; retail sales are off 14% for the first half of 1998; the stock market
has fallen some 50% from its peak; and in the first quarter of 1998 Hong Kong experienced
negative growth (2%), for the first time since 1984. Pressure on the Hong Kong dollar,
which is linked to the U.S. dollar at a rate of HK$7.8 = US$1, has caused a rise in
interest rates, leading to a sharp correction in property prices, down 35-40% so far from
their 1997 peak levels. Hong Kong's economy remains susceptible to external factors,
notably the economies of China, the U.S., Japan, and the EU, as well as risks from
interregional shocks from Indonesia, Korea, and Thailand.
In 1997, however, Hong Kong's economy continued to perform well. Its open,
services-dominated economy achieved a real growth rate of 5.3%. Inflation averaged 5.7%
in 1997, and foreign currency reserves totaled US$92.8 billion at year's end, the world's
seventh largest. A tradition of prudent fiscal management has generally enabled Hong Kong
to realize budget surpluses.
The keys to Hong Kong's economic success its free-market philosophy, entrepreneurial
drive, absence of trade barriers, well established rule of law, low and predictable
taxes, trans-parent regulations, and complete freedom of capital movement should enable
Hong Kong to make it through the current regional downturn, and to be among the first
economies in the region to return to the type of growth it has experienced in the past.
Longer term, Hong Kong's attractiveness as a profitable commercial and financial center
should be enhanced as the high cost of doing business, largely stemming from rising
property and labor costs, has come down considerably because of the economic crisis.
Rising unemployment has eased wage pressure and dampened the high turnover that most
companies faced, as a result of the extremely low unemployment rates that had prevailed
in the past.
Bibliography
http://www.china-embassy.org/economy/general.htm
http://www.chinesebusinessworld.com/business/bgeneral/econ-gen.html.
http://www.state.gov/www/about_state/business/com_guides/1999/eastasia/china99_01.html.
http://www.state.gov/www/about_state/business/com_guides/1999/eastasia/hongkong99_01.html