|
|
Introduction to
Economics
Lesson 06 / 08
CHINA
In area,
China, with approximately 9.56 million sq. km. is the world’s third
largest country, after Russia and Canada.
Its population of approximately 1.35 billion persons is the
world’s greatest, comprising approximately 22% of the world’s
population. Average
population density is 138 persons per sq. km., although density is much
greater in the more populated eastern third of the country and along the
Yangtze River.
By way of
contrast, Australia with an area of approximately 7.68 million sq.km.,
the world’s sixth largest country, after the USA and Brazil, has a
population of approximately 21.2 million, and an average population
density of 2.6 persons per sq. km. Again population density is significantly higher within the
more populated south-eastern fringe.
In the last
30 years, China has experienced an extremely high rate of economic
development. Depending on the measure used, it is today the world’s
second, third or fourth largest economy, after the USA and, possibly,
Japan and Germany. There
are numerous predictions that within a few years it will become the
world’s largest economy. As
the C19 was the century of Europe and the C20 that of America, it is
suggested that the C21 will be that of China.
Napoleon Boneparte’s description of China as a sleeping giant
that when awoken would astonish the world has seemingly come to pass.
Recent
History
The death of
Mao Tse Dong in 1976, and the return to power, for the third time, in
1977, of Deng Xiao Ping was a turning point in China’s recent history.
Deng set about transforming the Chinese economy.
Sweeping changes were made.
Instead of isolationism and total self-sufficiency, China opened
itself to the world, particularly the West, and invited trade and
co-operation. Marxist
economic ideology was largely abandoned and significant steps taken
towards creating a market economy.
The rural commune system was abandoned.
Stock markets were established.
Private property and enterprises were permitted and encouraged.
Affluence ceased to be officially regarded as necessarily sinful
and there was widespread acceptance of the proposition that letting
individuals run their own lives was conducive of prosperity.
The system was said to be a Socialist Market Economy.
Between 1979
and 2005 China’s average annual increase in GDP was 9.6%, the highest
in the world, and this figure has continued to rise.
The value of exports in that period rose from US $14 to US $762
billion and imports from US $16 to US $660 billion.
Even allowing for potentially dubious statistics, China’s
recent economic growth has been undoubtedly astounding.
In 2001, China joined the WTO.
This year it is showcasing the Olympic Games in Beijing.
Overview
Excluding
Taiwan, HK and Macau, China comprises 22 provinces, 5 autonomous regions
and 4 autonomous municipalities. From
west to east the countryside descends in seeming steps, with mountain
ranges, including the Himalayas, in the west and flatlands along the
coast. There are 3 major river systems; the Yellow in the north, the
Yangtse in the centre and the Pearl in the south. The country generally
is richly endowed with natural resources, but for a variety of reasons,
less than 20% of its area is considered arable.
Approximately
93% of the population is Han or ethnic Chinese, a people imbued with a
culture that encourages and respects learning, hard work, saving and
responsibility. These are characteristics conducive of economic development
and prosperity. The
remaining 7% comprise the 50 odd officially recognized minority
nationalities within the country, such as Tibetans, Uighurs, and
Mongols, who typically reside in the large, sparsely populated border
regions. Nor are the Han
completely homogenous, there exists significant regional differences
among them in language, customs and characteristics, particularly
between north and south.
Through much
of the C20, a series of events combined to constrain China’s economic
development. They included Western imperialism, civil war, the Japanese
invasion, and economic mismanagement under Mao. Deng’s reforms, which coincided with significant worldwide
technological advances in transport and communications, meant that China
then had a crucial comparative advantage vis-a-vi most advanced
manufacturing nations, particularly the USA, namely extremely cheap
labour. As a result, China
has become manufacturer for the world.
In this they were aided by the Chinese diaspora, an estimated 40
million overseas ethnic Chinese, who live in communities scattered
throughout the world.
It
is at least arguable that in becoming manufacturer for the world, and
continuing to do so, China has, at least until now, saved the West from
the worst of its own folly, where otherwise the price of manufactured
goods would have risen alongside those of property and shares. China’s voracious appetite for raw materials to feed its
burgeoning manufacturing and construction industries has also caused it
to become a major export market for many countries, including in
particular Australia.
The problem
with the comparative advantage of cheap labour is that it tends to
disappear as a consequence of its own success; development leads to
prosperity and higher wages.
China however
has maintained its advantage in this regard, at considerable cost to its
own people, partly by pegging its currency to the US dollar, thus
preventing the US dollar devaluing as against the Chinese yuan and
American-priced goods and services becoming relatively cheaper.
As a consequence, China has amassed a huge US dollar surplus, on
which it faces a major loss if the US dollar were to suffer a
significant fall in value. China now seems intent on spending at least some of
this surplus buying up real property and enterprises around the world.
Potential Pitfalls
Extrapolation
of recent figures suggests that China will indeed become the world’s
major economic power within a short period.
There are however a number of potential pitfalls;
- State-Owned Enterprises [“SOEs”];
Perhaps a third of Chinese enterprises are state owned, mostly
left over from the time of Mao. Many
are inefficient and unprofitable, requiring continual subsidizing, but
are politically difficult to close down
- Suspect
Banks; Much of the
assets of many banks are loans to SOEs, which continue to be made
but in many instances will never be repaid.
Many banks, if called on to repay all depositors probably
could not do so.
- Uneven
Development; Development has occurred geographically
disproportionally, in particular in the eastern third of the
country. It is
estimated that at least 300 million people, mostly in rural areas in
the center and west of the country, presently exist on less than
US$1 per day.
- Minority
Unrest; As heir to the
former emperors, the Chinese government rules an area, perhaps 40%
of the country, largely inhabited by minority peoples.
- An
Aging, Excessively Male, Population;
Due largely to its ‘One Child Policy’ China’s
population is rapidly aging, resulting in less productivity and
higher care costs. There
are also less female children due to a cultural preference for
males. It is estimated that presently 70 million adult males will
not find brides.
- Communist
Party Dominance; China’s
estimated 70 million strong Communist Party forms an elite class
with considerable power, fuelling resentment and allegations of
corruption and unequal treatment.
- Pollution
and Degradation; The
rush to develop means much of China, particularly the cities, is
extremely polluted, largely due to the ongoing reliance on coal for
energy, and much of the countryside is degraded.
- Taiwan;
Ongoing tensions between the mainland and China’s 23rd
province, Taiwan, continue and could conceivably, albeit unlikely,
result in a major war.
David Sharp
12
May 2008
Return to the Home Page
|
|