Overview

With over 30 years of solid economic growth, China is an anomaly in the economic world.  However, it seems that the odd mixture of communism and free markets that has resulted from the Great Leap Forward may have finally come to fruition as China’s economy is making the transition from producer of cheep goods to all around economic superpower.  As China moves into cars, electronics and coercive economic foreign policy, it has become clear that China’s economic clout is something for the world–and especially the US–to watch.  As such, this brief will examine the fourth largest economy in the world, and look at some of the impacts of this rising power.


Key Terms and Figures

Hu Jintao: President of China since 2002.  Sees economic reforms as a threat to Chinese morality.  Rather than reform the economics, he has countered with campaigns to remind China of its commitment to Marxism – leading many to suggest he is an economic moderate.

Wen Jiabao:  Premier of China.  Responsible for bureaucratic management. Sometimes referred to as the “Prime Minister.” Jiabao is the Chairman of the State Council of the People’s Republic of China.  Known for moderately reformist views, generally approves of controlled economic liberalization.

Xie Xuren: Current Finance minister of China.  Took office in 2007 after Jin Renqing resigned (allegedly) due to a sex scandal.

Zhou Xiaochuan: Governor of the People’s Bank of China.  Manages the day-to-day value of currency.

Growth Rate: The Chinese economy is currently projected to grow 10.8% over the next quarter.  China has been sustaining growth of 8% or higher for over 30 years – something unparalleled in the history of economics.   While some–especially the Chinese government–argue that this is a product of their careful management of the economy, others note that sustained growth is partly a result of the abysmal state of the economy three decades ago.  It is easy to grow fast and a lot when you are starting from basically zero.

Interest Rates:  Currently, inflation is a bit high in China, which slowed growth over the last quarter.  As such, the central bank is projecting an interest rate cut.  However, these actions are unlikely to be as extreme as those implemented by their western counterparts, as the Chinese banking system was largely insulated from the sub-prime crisis.  For much of its recent history China has allowed the Yuan to stay weak against global currencies, as this has encouraged their growth with cheep international goods.  Yet recently, China has started to move away from these type of polices relying on price – rather than quantity – of exports to fuel their economic growth.

Major Issues      

Too Fast or Just Right?:  One of the constant questions surrounding the Chinese economy is whether its fast growth rate may cause the economy to overheat.  This has become especially apparent as the value of a export economy – such as China’s – is severely limited in times of global economic slowdown.  Basically, if the world stops buying Chinese goods, the Chinese economy is in a world of hurt because it lacks a strong domestic market for many of its products.  The worries of overheating are further exacerbated by the fact that much of the economic growth is only felt by small segments of the population, meaning that the prosperity does not fuel the rapid growth in quality of life that can help sustain an economy.  While some forecasters feel that these factors will hamper the Chinese economy, the Chinese central bank argues their control of interest rates should keep this in check.  And while any state sponsored report in China is suspect, this one has empirics on its side; the Chinese economy has managed to maintain its growth despite economic slowdown, and hasn’t been hurt by the exaggerated rate.  It seems that the Chinese economy is built for rapid acceleration, and until it has fully industrialized and modernized the entire nation, has a buffer that protects it from overheating when the global economy cools.

Resource Competition:  One of the Major byproducts of China’s continued rapid growth and industrialization is the development of a large demand for natural resources.  This demand has made China into the primary recycler of e-waste – although this is preformed in an environmentally unfriendly manner.  China has also become one of the largest consumers of fossil fuels.  Because of this much of their foreign policy is focused on ensuring enough oil and gas flows to them rather than the West.  This demand for natural resources is seen as one of the primary reasons that China has repeatedly intervened on the behalf of both the Sudanese and Iranian governments at the United Nations.  Basically, China is willing to support governments that the world condemns to gain access to their energy supplies.  It has even been posited that the growing global demand fueled by China is a major factor in the rise of global gas prices.  As the Chinese economy continues to grow, expect a greater demand for natural resources, a demand that will fuel Chinese foreign policy in opposition to the West.

Soft Power: One of the greatest benefits China has gained from its economic windfall is a large store of soft power.  Because they now represent a major trade partner – and one with great growth potential – China has been using its economic clout to gain political influence throughout the world.  The power of this influence has been primarily focused on south East Asia and Africa.   By supporting unpopular regimes, or offering an alternative to Western support – which is still remembered as colonialist, China is building a global sphere of influence through its trade.  As such, Chinese growth may be the precursor to a larger global divide, returning to the days when the globe is divided between two competing camps.  While Chinese influence, and opposition to western goals, has yet to reach the proportions seen in the cold war, China has certainly gained more support at the UN and has grown increasingly more bold in its willingness to stand alone on controversial policy decisions – a trend that doesn’t look likely to change soon.

Environment:  The final, but perhaps most immediate, result of Chinese economic growth has been the environmental cost of this acceleration.  Throughout all of the growth, China has paid little attention to the environmental cost.  The result is that many of the industrial areas of the nation are plagued by horrible air and water pollution.  Yet the public health risk associated with Chinese growth also results from the lack of clear safety regulations for workers.  Often dangerous chemicals are handled without safety equipment or proper disposal.  Yet beyond threatening its own Citizens, China has also been a major opponent to global environmental initiatives.  It never ratified Kyoto and has been vocally opposed to new treaties arguing that nations like China need to have the same chance the West did: to industrialize fully before they worry about the environment.  Thus, while China has become one of the largest global producers of greenhouse gasses, they are working actively to ensure that little is done to change this production.

Sample Questions

Will environmental concerns lead to Chinese economic slowdown?
Will China ever be a true threat to US economic hegemony?
How much longer can China maintain its current rates of economic growth?
How much has Africa benefited from increasing Chinese economic clout?
Should the Chinese government reign in economic growth?