By: Prionka Jha
China certainly has made great strides and has left the whole world wondering about its economic muscle. In no time it has leap-frogged to take on the world economies one by one. In fact, President Bush has described the phenomenal Chinese economic growth as “China is a great nation that is growing like mad”.
In hardly any time, successive top Chinese leaders have pushed forward the economic reforms in the mainland China that has led to rise of a formidable economic power house. On date, all global eyes are on China – some with admiration, some with envy and yet others with suspicion.
China’s path to economic success
The story of the booming Chinese economy began way back in 1978 when Deng Xiaoping’s government started reforming its economy and started following market oriented policies. These economic reforms have proved to be a boon for millions who have been lifted out of poverty. And if the official Chinese data suggests that the poverty rate has come down from 53% of population in 1981 to 8% in 2001.
To achieve this feat, the Chinese authorities switched to a system of household responsibility in agriculture, permitted a wide variety of small-scale enterprise in services and light manufacturing and opened the economy to increased foreign trade and foreign investments. All these measures combined together have been the winning formula for Chinese economic growth.
These reforms led to average annual growth of 10% in agricultural and industrial output. Per capita income doubled, industry posted major gains. China became self-sufficient in grain production, rural industries accounted for 23% of agricultural output, absorbed surplus labour. The manufacturing of variety of light industrial and consumer goods increased. Reforms were introduced in the fiscal, financial, banking and labour sectors as well.
Chinese economy tastes success
China’s economy regained momentum in the early 1990s as Deng’s renewed push for the market reforms were not just backed but were implemented with great success. But what actually gave fuel to the economic expansion was the introduction of 2000 Special Economic Zones in 1993 and these SEZs were facilitated by the influx of foreign capital.
Though the Chinese economy slowed down in the late 1990s due to the influence of Asian Financial Crisis of 1998-1999, the economic growth once again accelerated in the new millennium – reaching 9.1% in 2003, 9.5 % in 2004 and 9.8% in 2005.
It also seems that Chinese economy is all set to overcome many milestones in the new millennia. In December 2005, China’s National Bureau of Statistics revised its 2004 GDP upwards by 16.8% making China the sixth largest economy of the world. And at the start of 2006, the Chinese government officially announced itself as the fourth largest economy of the world with a foreign exchange reserve overtaking France and the United Kingdom. Not the least, it has been predicted that by 2009, China will overtake Germany as the third largest economy.
Chinese-African marriage of investments
China has very well understood the vital role played by Africa in the emerging global realignments in politics and trade. Thus, recently on the occasion of the 50th anniversary of its diplomatic ties with Africa it, undoubtedly, projected itself as a power showing the path for development and growth to African nations. It announced a whopping assistance of USD 3 billion in next three years and it is to double its grant by 2009.
All this and the past engagement in Africa certainly reflect that China has pinned a lot of hope on Africa for its future prospects. As of now China is the third largest trading partner of Africa next only to the United States and France.
Africa has rich oil and mineral resources and a huge market, but suffers from economic development. China, on the other hand, has achieved remarkable economic growth. But with China’s rapid rise these is an ever-growing demand for steady supplies of oil and mineral resources. In this context, China has been able to converge its own needs with Africa’s interests.
The Asian giant is a key investor not only in natural resources in Africa but is also a provider of technical expertise. Chinese interest in Africa cuts across many sectors - infrastructure, health, communications, industry, and agriculture.
Several African nations feel that China is helping them in a big way with capital and technology. For instance, Chinese investments have helped Sudan to change its status from oil importing to an oil exporting country.
Growing energy appetite
China has plenty of oil of its own, but the onshore fields in particular are old and running dry. Thus, it is not fussy where its oil comes from – be it Kazakhstan, Sudan or Angola. Its main concern is having enough of it for which it is engaging in oil diplomacy to meet the growing domestic demands.
China`s rulers seldom go anywhere these days without talking oil, while at home they have unrolled the red carpet to dignitaries from all 11 countries in the Opec cartel several times.
As the world`s fifth biggest oil exporter, Venezuela is vitally important to the US, though relations between the White House and President Chavez are strained. But eyebrows were raised in Washington when Venezuela offered Chinese firms operating rights to mature its oil fields.
In 2003, China raced past Japan to become the world`s second biggest consumer of petroleum products after the US. In 2004, its thirst grew by 15%, while its output only rose 2%. It has therefore done well for itself by carving out intimate and strong relations with major oil producers such as Iran, Saudi Arabia, Sudan and Venezuela.
Challenges and hiccups
Despite making successful economic strides, China faces great difficulty in solving the unemployment problem. There is a huge difference between the urban and rural population wealth. To correct this uneven growth throughout the country the Chinese government has introduced several effective policies, measures like abolition of agricultural tax, investment in rural infrastructure, education and health sector. But the great disparity in urban-rural income has not narrowed down and still is a big cause of social discontent.
The external dependency factor from time to time has caused trade friction for the Chinese economy as it is heavily dependent on foreign trade (exports) and investments. Investments and export sector collectively accounts for about 80% of the Chinese GDP.
China’s growing economic clout has earned it a lot of unpleasantness from the Western nations. Several media reports point that Western governments have claimed that Chinese government has unfairly manipulated the Yuan exchange rate.
Moreover, the dramatic increase in China’s overall trade surplus has without doubt become an irritant for the Western governments. As at least 60% of the Chinese goods labeled ‘Made in China’ are not necessarily developed or designed in the country but are exported from overseas-invested factories and are assembled in China mainland. Thus, despite its huge trade surplus with the West, it has a huge trade deficit of approximately USD 137 billion in Asian countries.
Another area of concern for China is the epidemic of piracy. Piracy of anything and everything from computer software to pharmaceuticals to clothing, automobile parts to chewing gum etc is rampant in the country. US, European Union nations, Japan and other trading partners of China have expressed their trouble, worry and apprehension to the reported combined losses they have to bear as a result of flood of cheap pirated Chinese invented goods in the international markets.
Though the facts and figures point, but only time will tell whether China becomes the leading economic nation. But in its mad race to be an economic power house, it may have to pay a price in terms of environmental hazards if industrialisation challenge is not dealt with carefully.
