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Autor: anton 16 December 2010
Words: 1659 | Pages: 7
Towards the conclusion of the 1900's, enhancement of both technology and communication has lead to the massive growth in the international markets and increased trade dependency between nations. This has resulted in a swift increase in trade, flows of investment, private savings and labour across national borders. This process known as globalisation has had many significant impacts on the economic performance of China including increased international convergence, economic growth and development, whilst also contributing to environmental problems. As a result of globalisation the Chinese government has implemented various macroeconomic, fiscal and monetary strategies that aim to promote economic growth and development.
It has been argued that globalisation will result in international convergence. This is evident with China as its encouragement of globalisation has beyond doubt led to international convergence. International convergence refers to the increasing likeness of economic conditions in diverse economies during the globalisation era, in terms of living standards, and economic systems, performance and structure. Although China may still have a great inconsistency in its distribution of income and living standards, it's ongoing economic improvements such as its access to the World Trade Organisation (WTO) in 2001, reflect its evolution into more western style economic proceedings. The addition of China in the meeting of the G-7 in 2004 was reminiscent of the growing importance of China in the world economy, and represents its transition into an advanced economy. As a result of globalisation new technology is having enormous impacts on market integration, efficiency, and industrial organisation, along with its implications for the development of human capital. It results in economies of scale through boosts in efficiency and growth by spreading knowledge and reducing transaction costs for individual firms and the economy as a whole.
Globalisation is said to offer the nations of the world the opportunity to experience economic growth and development and to improve the quality of life for their citizens. China has been recognized as a Newly Industrialised Country (NIC), which has seen it benefit from fast economic growth since the initiation of its Ð’â€˜open door' policy in 1978. This overwhelming growth is marked in the graph. Access to the WTO has impacted upon this growth and in 2004 China's Gross Domestic Product (GDP) officially "grew by 9.5 per cent in the first nine months of this year"( Spokesman Zheng Jingping for the National Bureau of Statistics) , the fastest in eight years, making it four times larger than it was in 1978. Relative to advanced nations who's GDP grows at around 2-5% per year (as indicated in the graph), China's growth must be seen as remarkably high. It must be considered though that this rapid increase is partly a function of China growing from a low base. In addition measured by purchasing power parity (PPP), China stood as the second largest economy in the world after the United States in 2003. PPP measures the value of a currency within it's domestic economy and this fact contributes to highlighting the extent of this massive growth in China.
China is simultaneously a great economic power where widespread poverty still prevails and positive contribution to the deprived is limited. The economic growth of China has resulted in improvements in the general quality of life, however these gains have not been shared equally within the economy. The included graph which indicates China's Human Development Index depicts this fact, with China's value at 0.721, ranking it 104 out of 175 countries .In 2005 its annual per capita GDP was $1,400 and the current situation in China has18.5 % of the population still below the poverty line. There are also many other severe imbalances in the development of China's economy. For instance, its drive for prosperity and the impact of this on the environment; its explosive demand for natural resources and its relatively poor resource base; its accelerated unleashing of market forces and its lack of social safety nets; its private sector and its state-owned enterprises; the hyper development of some of its coastal areas and the underdevelopment of its inland regions; and, most perilous of all, its vibrant economic freedom and its lack of political freedom.
Clearly exposed in the graph, globalisation has resulted in increasing levels of trade and investment for the Chinese economy. The trade regime which has been significantly decentralised and liberalised since 1978 has led to the Chinese economy becoming increasingly integrated into the world economy. In 2002 China contributed 17% to global imports and in 2003 surpassed Japan in becoming the third largest goods trading country in the world, with exports and imports each valued at over $US30b. China now accounts for 5% of world merchandise trade, up from 2% ten years ago. Its ongoing integration into the world economy is reshaping the trading patterns of many countries, including Australia. Since 1978 when the drastic changes took place, its exports have grown at 17% per year on average and in December 2001 it joined the WTO. This faster export expansion has been associated with a significant current account surplus which accounted for $US21b or 1.7% of GDP in 2002.
The impact of globalisation on China's economic growth and development the production that has fuelled China's rapid growth, have had significant and widespread environmental consequences. The impacts on China's environment relating to land degradation have been motivated by the increased competition that globalisation has introduced. This has resulted in the more intensive use, and over-utilisation, of the land for agricultural activity. By far the most noticeable effect on China's environment, however, has been brought about by the activity of foreign-owned companies. One example of this is the extensive exploitation of underpriced natural resources which has resulted in approximately 1% of China's woodlands being lost each year, as well as disappointingly high pollution levels. A World Bank report from 2001 even went so far as to say that 16 of the world's top 20 polluted cities are Chinese. Another alarming fact is that 60% of China's rivers are considered unsuitable for human contact. Land degradation-related effects have reduced the land's productive capacity, and the health problems associated with pollution will require huge government expenditure believed to be between 3.5-8% of GDP.
Foreign Direct Investment (FDI) in China since 1978 has increased more rapidly than in any other economy and this is apparent in the graph below. The net impact of FDI upon the Chinese economy appears to be highly favourable and for numerous reasons including its accession to the WTO, its robust economic growth, exploration and development of its western region, political stability and the successful bid to host the Olympic Games it seems an attractive place to foreign investors and TNC's. ``In the first 10 years of the 21st century, FDI inflows will enter a mature stage of development,'' institute vice director Chen Wenjing said. He went on to say that actual FDI in China is forecast to reach a record high of more than US$50.
In order to achieve contain the effects of globalisation and to achieve this growth and development, China has implemented a range of economic policies and strategies. Over the past decade, the pace of reforms in macroeconomic management has increased. The central government has moved steadily from direct intervention and quantitative controls over the macro economy to greater reliance on the indirect monetary and fiscal policy instruments used in market economies. The central government's direct control over the economy by means of output planning and price fixing has virtually disappeared although interest rates are still pegged artificially.
Furthermore, its fiscal authority declined when it decentralised fiscal powers to the provinces in the 1980's. Consequently the central government was increasingly forced to rely on direct controls over bank lending via the credit plan, to influence overall growth and inflation. However after all the major reforms flagged by the Third Plenum of the Party's Fourteenth Central Committee in 1994, the pace of macroeconomic reform accelerated. The government now employs monetary instruments such as bond issues to finance the budget deficit, open market operations and reserve deposit requirements to manage excess bank liquidity and flexible interest rates in the interbank credit market to provide for a more market driven interest rate structure. Monetary authorities have successfully engineered a Ð’â€˜soft landing' moderating growth and reducing inflation from the unsustainable levels of the early 90's. Following this, inflation was reduced to 6% and real growth was just under 10%. These results were achieved primarily by the use of monetary instruments and administrative controls over some prices. Previously authorities only succeeded in reducing inflation by severe contractions of credit and growth, however the new benefits consisted of increased growth, increased development and reduced inflation which stress the importance and effectiveness of these particular reforms.
The 1994 tax reforms were introduced to finance infrastructure spending and improve the efficiency of tax collection. The tax reforms shifted the power of collecting taxes to the central government from the provincial governments, as well as confronted the problems of tax evasion and avoidance. As a result of the 1994 tax reforms, raising sufficient government budget revenue, to meet government spending commitments, was no longer such a problem to China, and the reforms have been exceedingly triumphant, however further strengthening of the central governments taxation capacity would enable fiscal policy to operate more effectively. This would allow for greater revenue generation and more equitable revenue sharing, providing all levels of government with increased capacity to fund social welfare policies. It would also relieve the banking system of some of its quasi-fiscal responsibilities, such as subsidising state owned enterprises (SOE's), infrastructure projects and agriculture, and enable a more efficient balance between fiscal and monetary policy in overall macroeconomic management.
The pre reform system of trade planning has been dismantled and increased numbers of foreign trade corporations now have trading rights. Foreign funded enterprises including wholly foreign owned firms now play a prominent role in China's trade. In the late 1990's they were responsible for 41% of total export trade and 53% of imports.
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