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.