Analyse the impact of development strategies on the economic growth and the

quality of life for an economy other than Australia. (20 marks)

Globalisation, the driving force behind Chinas level of growth, is the process of
increasing integration between different countries and economies resulting in the
establishment of a single world market and the increased impact of international
influences on all aspects of life and economic activity. Globalisation has many impacts,
and differing views of globalisation emerges from those who benefit most from it and
those who receive none to little benefits. Chinas global integration has assisted their
impressive economic performance and the associated improvements in living standards
through economic components such as trade, investment and financial flows. On the
other hand, primary Government economic policies limit and reverse negative impacts of
globalisation and increase income inequality and environmental consequences.
Economic growth is a quantitative measure of the increase in Gross Domestic Product (or
GDP) over a period of time. A rise in economic growth means that there is an increase of
a nations economic capacity. Over the past 30 years, China has amazed the world as its
fastest-growing large economy, with a sustained growth rate of around 9% since the late
1970s1, bringing millions of people out of poverty.
One of the strategies undertaken to promote high economic growth was the Open Door
policy. Adopted under the leadership of Deng Xiaoping, the Open Door policy has been
carried out for more than 20 years since the 1980s. This strategy was extremely
beneficial for the Chinese economy as it started by setting up the Special Economic
Zones (or SEZs) in southern coastal provinces, to attract foreign trade and investment; it
offered low tax rates, cheap labor and less regulation. Most importantly this strategy
integrated china in the global economic market and had a great impact in promoting high
economic growth and development.
Globalisation encourages international trading and economic growth, and China has
benefited particularly from this. During the past 30 years the average export levels have
increased by 17% annually. This shows that Chinas international trade levels have
increased dramatically due to globalisation and there has been an increase in
employment opportunities. In 2001, China gained access into the World Trade
Organisation (or WTO) in response to the globalisation trend and reduced its trade
barriers, opening up to foreign investments and international trade. Formed in 1995, the
WTO was beneficial to the Chinese economy as it further enhanced the spirit of
integration and trade liberalisation.
This strategy has brought major beneficial changes in its economy such as having access
to the world market, attracting foreign investment, adopting new ways of management,
and the access of new technologies. In 2010, China contributed 13.6% to global growth
and accounted for 9.4% of world merchandise trade 2. In the same year, they became the
second largest goods trading nation in the world after the USA.
In addition, China has also joined numerous bilateral free trade agreements. Free trade
agreements (or FTAs) promote stronger trade and commercial ties between participating
countries. China has commenced a free trade agreement with Australia to remove trade

The Global Economy Handout

Influence of Globalisation on China handout

Miriam Elchami

barriers and as a guarantee for sustained mineral resources. Additionally, a regional

multilateral trade agreement China has joined, is the Asia-Pacific Economic Cooperation
(or APEC). APEC has become the pre-eminent economic forum in the Asia Pacific and the
worlds fastest growing dynamic region since it was established in the early 1990s.
While globalisation has transformed the Chinese economy when providing room for
trade, it also remained crucial for the government to deregulate its banking and financial
system. China is the second largest recipient of Foreign Direct Investment (or FDI) in the
world. They were receiving $US116.01 billion 3 in 2011, which is up 9.72% year-on-year.
When FDI is used well, it can contribute to growth and poverty reduction. FDI and
Transnational Corporations (or TNCs) have increased rapidly since globalisation and the
opening of markets and deregulation by the Chinese economy. TNCs play a key role in
both trade and financial flows. China is not just benefiting themselves by becoming a
more market based economy but they are also creating positives through the rest of the
world by selling their comparative advantage of cheap labor to many TNCs and FDIs.
The high degree of investment and the level of trade in China is heavily impacted by the
short-term shifts in the financial sector. Financial markets shift massive volumes of
money to another on a daily basis and hence, because of globalisation they have become
increasingly volatile. For example, the Global Financial Crisis (or GFC) in 2007 was the
cause of sudden loss of investors confidence. However, in October 2008, Chinas leaders
leapt to action, foiling the impact of the global financial crisis with a $4 trillion RMB fiscal
stimulus package4. Financial deregulations have exposed China to these fluctuations.
The main challenge for policy makers is ensuring the stability of Chinas economic
growth. Globalisation has not equally benefited all countries widening the gap between
the rich and the poor and even the most profitable countries such as China have not
equally distributed their source of income. As Chinas economy makes substantial gains
in the global economy, recent trends show that Chinas Human Development Index (or
HDI) has risen from 0.37 in 1975 to 0.69 in 2011 5. There has also been an increase in
overall education level and overall reduction in poverty.
However, this rapid growth has caused some problems, such as high inflation rates in
urban areas and increasing economic income inequalities between regions. Despite the
improvements in economic growth and development in China, in recent decades, the
richest 10% of the Chinese population (mostly living in urban areas) owns 45% of the
nations wealth, while the poorest 10% own only 1.4% of it. Income inequality can be
measured through the Gini coefficient. This gives a statistical measure from 0 to 1 where
0 represents zero inequality and 1 represents maximal inequality, where one household
receives the total income. The further away the Lorenz curve is from the line of equality,
represents the greater the amount of income inequality. Chinas Lorenz Curve shows that
although economic development is overall improving, the gap between the richest and
poorest has been widening since 1992. The most rapid increase has been between 2002
and 2009 where the Gini coefficient rose from 0.30 to 0.54 an increase in income
inequality of 0.24.

http://news.xinhuanet.com/english/china/2012-01/18/c_131366513.htm

http://www.marketwatch.com/story/chinas-stock-market-is-a-value-trap-2012-12-04

Figure 1. China's Lorenz Curve

5 http://hdrstats.undp.org/en/countries/profiles/CHN.html
Miriam Elchami

The Chinese government has continued

to apply policies to reduce the widening
gap between the rich and poor. Since
1999, an education policy has been
adopted in and has resulted in a major
transformation of higher education in
China. The number of undergraduate and
graduate students in China has been
growing at approximately 30% per year
since 19996, and overall increasing the
standard of living for the Chinese
population.
Additionally, the government has created health care policies to increase the life
expectancy of the population and inadvertently leading to a higher standard of living for
the poor. The Chinese government has spent $125 billion over the past three years to
extend insurance coverage to 95% of the population while also improving access to
hospitals and clinics7.
As well, China has pursued unsustainable practices to maximize opportunities of
globalisation, they have perhaps become too absorbed in becoming the fastest growing
economy with such high growth, development and HDI levels that environmental issues
are not seen as being important, therefore this issue is just being ignored.
Environmental issues including air pollution, water contamination, land degradation, loss
of habitat, loss of grassland, top soil and forest, desertification as well as the spread of a
lot of diseases such as lung cancer and inefficient waste disposal will soon diminish the
level of economic growth as China is depleting its natural resources.
To conclude, as China lower their trade barriers, giving the positive impact of increase in
international trade and foreign investment, resulting in significant levels of economic
growth and development. Globalisation has also provided competition for domestic
industries, encouraging high efficiency and competitiveness.
However, these benefits of globalisation are not equally enjoyed across the population,
as there is an inequality in distribution of income, in which the government established
no specific policies to address this problem. The growth in economy also caused
environmental problems such as degradation and pollution, which the government have
showed keen interest in managing this problem, but have so far failed to reinforce the
policies established to protect the environment.

http://www.voxeu.org/article/china-s-higher-education-transformation

http://blogs.wsj.com/chinarealtime/2012/08/29/report-chinas-health-care-system-deeply-sick/

Miriam Elchami