China: markets to trade and investment, an unprecedented rate

China: Its Emergence as the “Workshop
of the World”

 

Due to the 1979 opening up of
Chinas markets to trade and investment, an unprecedented rate of growth was
seen by the country “1980 to 2003: 9.5% growth/year, 2003 to 2008: 10%
growth/year” (MacKinnon and Cumbers, 2007, pp105). This growth has decelerated
slightly since the recession but is still a strong 6-7% ahead of the global
average (Spark, 2013). At the time when many economies saw their growth
decline, during 2007 and 2012, Chinas GDP grew by a notable 60% (Spark, 2013).
During the mid-20th century China was categorised as one of the
“poorest countries in the world” which was mainly at fault due to its very weak
health and educational systems, in addition to this, wars completely destroyed parts
of the country (Spark, 2007). The Maoist period of stagnation from 1949 to 1978
was crucial in providing China with a strong economic base as during this time
GDP had already started to increase by ~5% per year alongside life expectancy
(Spark, 2007). 

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In order for China to become attractive
to other countries, four Special Economic Zones (SEZs) were created in 1979
(MacKinnon and Cumbers, 2007, pp105) with the aim of attracting capitalists
(Spark, 1013). Success of these SEZs was incredible, with Hong Kong bringing in
two thirds of the total (MacKinnon and Cumbers, 2007, pp105) and the Chinese government
decided to create “open coastal cities” in 1984 which meant that Western
companies could now set up along the East coast of China, soon after this the
Yangtze valley opened up for foreign investment (Spark, 2013).

 

A number of factors
facilitated the growth of China into becoming a flourishing production economy.
China has a large labour supply, meaning supply outstrips demand for work. The
Chinese workforce will work for low wages as they are mainly lower middle or
working class (Investopedia, n.d.). There are also no workers’ rights relating
to child labour or low wages, meaning companies can get away with paying the
lowest possible wage. Chinas evolution of supply chains has helped to support
its growth as many areas now connect together to form a system of manufacturing
through low cost labour, large workforces with great technical skills,
component manufacturers, suppliers and customers (Investopedia, n.d.). For
example, in the late 1980s China supported the fastest growing automobile
industry, which was composed of six main clusters around China that all linked
together (Mackinnon and Cumbers, 2007, pp233). By 2003 every single major
player in this industry had invested in China, proving the singularity of
Chinese bargaining power in gaining access to any world market (MacKinnon and
Cumbers, 2007, pp234). 1985 saw the abolition of “double taxation” on exported
goods from China, which increased its competition and lower tax rates and meant
that production costs could be kept down (Investopedia, n.d.).

 

Chinas dominance over other economies is not likely to remain forever. Already
we are seeing newer emerging economies (such as India) with growth rates
increasing rapidly and they may pass China in the near future. As China shifts
to a more knowledge based economy, away from production, this will cause wage
rates to rise meaning the one key advantage that China historically had, i.e.
cheap labour, will no longer be maintained, reducing Chinas competitiveness
(Investopedia, n.d.).