Chinese Economy

By the 20th century, we have seen so many great nation rise and fall. At all times nations strive for super power status as it assumes a lot of power and strength in global politics and economics.  In the past century alone, over four nations rise to glory of superpower status and being the world’s hegemon and fall back through the cracks. Such nations include the imperial Germany in the 1900 to 1918; whose power ended as a consequence of the Austro-Prussian War of 1866 between the constituent confederation entities of the Austrian Empire and its allies on one side and the kingdom of Prussia and its allies on one side. From 1931 there was the Empire of Japan and which conceded defeat in 1945 following defeat in World War II following the dropping of the ghastly Hiroshima and Nagasaki bombs. Thereafter the Soviet Union rose to prominence and flexed its muscles till the end of the Cold War period paving way for the USA to unipolarity status. Presently there are so many world power centres with even international organization like the European Union commanding global power. China has in recent times also risen to prominence

The rise of Chinese economic initiatives has undoubtedly caused much excitement and controversy in contemporary international relations. In 1978, President Deng Xiaoping instigated major economic reforms1which shifted the Chinese centrally planned economy to a market-based economy and moulded a Chinese model of investment. These significant changes have been highly beneficial to the all-round growth of China and contributed extensively to the Chinese economic boom. This paper will look into the key factors that have contributed significantly to the growth of china and thus bolstered its power globally. These factors include: economic strength, the high demand for energy and consumables, military growth, currency stability, environmental degradation, external debt, and its relations with the US.

Economic Strength

The Communist Party in China has always described the Chinese economy as a socialist market economy whereby it is run by the forces of demand and supply but highlighted by minimum government controls. China socialist market economy is considered to be the world’s second largest when measured in the scale of growth domestic product (GDP) after the United States of America, and it is the world largest economy by purchasing power parity (PPP) according to the data recorded by the International Monetary Fund. China has emerged to become a global hub for manufacturing, establishing itself as the global largest exporter of goods and services with the largest consumer market and largest importer of goods and services in the world.

Over the past few years, Chinese Outward Direct Investment (ODI) has increasingly become one of the salient issues in International Political Economy discourses. The swell in Chinese ODI has largely been catapulted by the ‘go-global’ strategy initiated by the Chinese government in 1999 to foster investments abroad. Through the go-global strategy, international direct investments by China have increased by leaps and bounds since mid-2000s.  From a dismal annual average of below $3 billion before 2005, it grew to $20 billion in 2006 and more than $50 billion by 2008. In 2010 Chinese ODI reached a peak of $60 billion amid shrinking levels of global Foreign Direct Investments (FDI), thrusting China amongst world’s leading exporters of FDI and surpassing other investors such as the UK. As reported by China’s Ministry of Commerce (MOFCOM) in 2012, China’s ODI is largely concentrated in Asia (mainly Hong Kong), which historically, has been the chief recipient of Chinese direct investment. Other major destinations for Chinese FDI include the Oceania and North America.

As China’s economy continues to swell over the years so does it focus on seeking trading partners across the globe. Following the instigation of economic reforms and embracing of an open door policy by China its participation in global trade has sharply increased. Besides, some of the Chinese industries with comparative advantage have begun to acquire high level of specialization thus making China the hub of manufacturing and thus boosting its involvement in exports. As of 2017, MOFCOM reported the total Chinese volume of trade to be standing at 27.79 trillion yuan which was 14.2% growth from 2016. China was the ranked has the largest exported in the world with its exports mainly destined for USA, Hong Kong, Japan, South Korea, Germany, Netherlands, and the UK among others. Key export commodities included electrically machinery, industrial machinery, furniture, apparel knit, precision instruments, motor vehicles and parts among others. In terms of imports, China was ranked as the second largest importer with volume of imports at $ 1.58 trillion, and mainly importing from South Korea, Japan USA, Germany and Australia.

High demand for energy

Being the hub of manufacturing and as its economy continues to grow, its demand for all sources of energy, particularly oil and natural gas, will surge. Oil demand is anticipated to grow at an average annual rate of 3.8% during the period from 1996 to 2020, and thus snowballing consumption from 3.5 million barrels per day. Though China is rich in energy resources on an absolute basis, it is poorly bestowed on a per capita basis. Its projected that its immense coal reserves will continue to provide most of its energy to the future as the supply in natural gas dwindles over the years due to depletion of natural gas reserves. In terms of oil, the demand is very high while the proven oil reserves only stand at 24 billion barrels, which is like 2.3% of the world’s oil reserves for a whopping 22% of the world’s population.

The widening gap between domestic reserves of energy and the high demand has compelled China to resort to importing energy from across the globe. This explains the various bilateral deals between China and oil producing countries in Africa such as Botswana, Nigeria, South Sudan and even Venezuela in the Americas. China has also resorted to foreign coal manufacturing plants in a bid to quench the thirst for energy at home.

Following the high cost of energy and the disastrous effects of oil and coal on the environment, China is slowly embracing renewable energy. This means adoption of high-tech industrial technology which has lower carbon emission and allocation of national revenue to innovative aspects aimed enhancing sustainability and reduction impacts of pollution. China investment in renewable energies have surpasses Europe and United States of America combined. Over the last five years, it is estimated that over 40% of all newly added renewable energy power was generated by China with an estimated $90 billion spent in 2016 alone to fund renewable energies. Industries within the China region have been allocated allotments where they are not to exceed emission so as to regulate on the carbon emission in the country. China has managed to develop its solar power industry at a faster rate and the country is considered to be the world’s largest wind power producer with thousands of turbines in western China and plans are under way to increase by 100 percent in the next five years. China is also considered to be the world’s largest hydropower producer with its hydropower dams accounting for half of the world’s total, with a more possibility of increment’s.

Military strength

The might in economic power is often a requirement for military stability in international politics. For a very long time much focus was placed on economic progression by the Communist Party, but following its recent rise to a major power status, the need to protect its interests both domestically and in foreign lands has gained focal point in policy making. From the 1990s, China has continually improved its military capabilities on land, sea, air and space. It has also widened the scope of its military activities to islands within the pacific, by deploying a fleet of small warships in 2008 to the Gulf of Aden in concerted international efforts to thwart Somali piracy, contributed more troops to the UN peace keeping missions, and provided military assistance to states previously considered as pariah by the US such as Zimbabwe and Myanmar.

Besides, China has instituted a modernization program for its domestic army which is the People’s liberation Army (PLA). This has involved doubling of budget allocation for military spending and adoption of advanced military technology in the world such as stealth fighter jets, nuclear missiles, Intercontinental ballistic missiles, unmanned aerial vehicles, a bulging well trained navy, and space-based platforms. Besides, China has also pumped a lot of resources in transformative technologies with military applications like hypersonic vehicles, artificial intelligence and quantum science. The PLA has also undergone intensive restructuring that aims to reform its command and control systems. China has also embarked on a military expansion strategy by setting up overseas naval bases i.e. in Djibouti, and showcasing its military prowess by engaging in deterrence i.e. when it prevented the US and allied intervention over Taiwan or the South China sea issue. However, unlike the US and the Soviet Union that took on the world policing role of ensuring global peace and security, china seems not to be keen on that type of military power. Its military power expansion is currently limited to protecting its territory, and foreign interests at stake.

Currency Stability

            The official currency in china is the renminbi which means people’s money, the yuan is the name of the unit that renminbi transactions are denominated. Generally, the renminbi is known as the yuan. Given the growth of the Chinese economy in recent times and China as a source of global liquidity, the yuan has fund its place to global markets. Until 2005, the yuan was pegged on the US dollar and as it embarked on a massive open market policy and go global strategy, the Communist Party devalued the value of the yuan so as to enhance the competitive of the Chinese industry in the world market. By 2016, the yuan became the first emerging market currency to be enlisted in the international Monetary Fund’s special drawing rights basket.

            In a bid to protect the value of its currency and cheapen its exports China has always used a fixed exchange rate system, while much of the world use a floating exchange rate system. This means that China can always fix the price of the yuan in a bid to boost sale of its exports. In the past, China has been caught up in currency devaluation wars with its neighbour Japan and even the USA. Deliberate devaluation of currency always leads to loss of foreign reserves for partner trading countries. The overall effect of the low value of the yuan has been cheapening Chinese exports thus boosting manufacturing following a manufactured demand in the market.

Environmental degradation

On environmental issues, China has left a negative environmental footprint domestically and even in foreign lands i.e. in Africa. The Chinese environmental crisis is one of the most pressing issues in recent times to emerge from industrialization.  The rapid industrialization has led to colossal carbon gas emissions which has affected the quality of air thus affecting life expectancy levels. The continuous orchestration of air pollution through big industrial projects and coal burning electrical plants, water pollution through leaked hazardous wastes into water bodies, desertification following clearance of forests from farmlands following the population outburst, loss of biodiversity evidenced by plant and animal species extinction due to poaching for example in the case of rhinos and elephants, and emergence of cancer villages

Like most FDI in Africa, Chinese FDI is concentrated in sectors of the economy that are vulnerable to environmental concerns such as mining, energy, fishing, and forestry.  Bosshard argues that Beijing’s widespread activities such as mining, oil and gas exploration, and the extraction of timber and hydropower have contributed extensively to environmental destruction in Africa. Bosshard cites cases of environmental destruction in DRC where Chinese firms are engaging in logging in the Congo forest, and the Sudan’s Merowe dam which has raised a lot of issues concerning the welfare of displaced people and that of the aquatic life.

China has also attracted a lot of environmental degradation-related criticism in the importation of products taken from African endangered species, especially elephant ivory and rhino horn. According to the Convention on International Trade in endangered species of Wild Fauna and Flora (CITES), Kenya and Tanzania have become primary export points for illegal trade of ivory on the continent destined for China and Thailand. In 1979, Africa boasted an elephant population of 1.3 million, that number has fell sharply to an estimated 472, 000-690,000 elephants by 2007. The recent upsurge in rhino and elephant poaching has been linked to the increase in demand for these items in Vietnam and China, following claims that rhino horns and elephant tusks have medicinal value. In Kenya, much of the poaching has been discovered to occur in areas along Samburu and Laikipia counties, which has private ranches, and are close to the Moyale-Isiolo road which was under construction by a contracted Chinese firm.

Bosshard explains that China’s own Environmental protection Agency is not influential in Beijing power structure, and the Chinese economic model does not have a focal point for environmental issues, hence Chinese firms do not pay much attention to environmental issues in the pursuit of natural resources of construction projects.

Demand for consumables

The huge population has always presented a deficit in supply locally which means that some of the demand can be satisfied through foreign imports. Besides, the existence of difference demographics in the population presents the dynamics of variety in tastes and preferences by local consumers. Besides, there has been a slowed economic growth rate in recent times which has presented the opportunity of boosting domestic consumptions. This explains why China imports a lot of food stuffs i.e. soya beans from the US, cosmetics from South Korea and the US, and cars such as SUVs from America and Japan. What this means at the global market place is an opening for countries to trade with China by exporting such much needed consumables for the Chinese population. This explains the recent myriad Sino-African relations which are centred on exchange of primary products such as minerals and agricultural products for cheap infrastructure.

US-China Relations

The relationship between the US and china is quite strong as it spans decades but also complex given the many hurdles and squabbles. The two countries enjoy a strong economic bond augmented by the trade relations, FDI exchanges, and currency ties which have necessitated political harmony despite the striking differences in ideologies. Their relations is however mired by mutual suspicion, hegemonic rivalry over the pacific and lately even in Africa where China has swept a “look East” wave through the continent, and economic cooperation to serve their interests. This relationship has been described by scholars as the most important bilateral relationship of the 21st Century.

Just like the Cold War influence, this relationship has drawn allies on both sides, with looking East and Looking West used as references for the alliances. In Africa and other third world countries across the globe, the rivalry between China and USA has manifested itself as proxy economic wars or the second scramble for Africa as each nation strives to sell its policies and lure allied nations to their side.

In a nutshell, China’s engagement with the world is the result of a carefully constructed foreign policy and a comprehensive approach that places China at par with long-established Western powers. However, with deepening association and expanding interactions, issues and conflicts inevitably emerge to challenge the established Chinese power. Whether China comes a world’s superpower will depend on the test of times and a comprehensive development of its other sectors especially political influence, soft power influence and military strength.