China and Australia Ties Essay

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International Trade

The Economy of China and Australia dependency

The Chinese economic takeoff has captured the attention of the whole world with its

year sustained growth. It started with the implementation of Deng Xiaoping's economic reform policy in 1979. Since then, China has been the world's fastest-growing economy. For a country comprising one fifth of the world's population, with an exceedingly diverse economy, such rapid growth would have been thought impossible. To propel the country towards a modern, industrialized communist society, Mao Zedong (founding father of the people's republic of China) instituted the Great Leap Forward (an economic and social campaign to transform China from an agrarian economy to modern industrialized economy).

Due to globalization, more countries are growing intertwined to each other economically hence many nations are viewed to be moving to develop ties both diplomatic and economic in nature to the countries that are more stable in their economy. This has seen Australia develop close working relations with China in terms of the economy and of late they are contemplating a military tie as well, but the economic tie between the two countries will be of central interest in this case.

Thesis statement

The recent indication by Australia to depart from the traditional trade partners like the U.S.A. And Europe in favor of China is a great economic risk that leaves Australia open and vulnerable to economic crumple based on the unstable and unexplained base upon which the Chinese economy was founded and still stands on.

Australia has traditionally depended on the U.S. And the European world economically until eight years ago when things changed and Australia began facing China. One of the fundamental reasons for this change is the China's outbound direct investment that are vast in quantity estimated to the tune of $90.2 billion as at 2013 and a considerable quantity of $117.6 billon in foreign direct investment into China and this is majorly directed into Australia. The other reason why this move to China is seen widely as a tactful and smart move is the fact that Australia happens to be the world 13th largest economy yet it hosts a population that is pinned at 52nd largest in the world. This means that the domestic savings base is not sufficient to supply the require capital hence moving to China to brig in more of the capital is seen as a move that is economically sound for Australia since China is widely viewed as a new source of funding. This move has over the last eight years paid off because Australia has been the single biggest beneficiary of the Chinese funding in terms of capital investment. The primary attraction of this Chinese investment in Australia has been energy sector and the mining fields, however, it is noted that of recent past it is planning to move from these sectors and focus ore on the green energy. It is planning on focusing on social infrastructure, renewable energy, biotechnology and sustainable business. There are interest in waste management and water treatment in this region as well.

There is also experienced growth in the private company investments as opposed to the state-owned enterprises and this comes in line with the diversification in the investment sector. There are several private investors venturing into Australia and their strategy is that they utilize their networks and the experiences that they have in China with the expertise from Australia and tap into the growing consumer market in China. The investors are looking at the Australian management style and learning from them then applying the same back in China and in their own companies hence making the relationship somehow symbiotic. The focus of the Chinese companies is widely seen as the quest to create more value within the Australian businesses and this sounds good for the Australian Foreign Investment Board. The Australia Foreign Investment Board pushes for the foreign investment and acknowledges the significance of these foreign investors to their economy China being one of them, indeed the main one.

However, the commitment of China to the foreign investment is doubted in many ways. The economic clout it creates is not in any way commensurate to the financial commitment it puts in. China is accredited to be accounting for 10% of the global GDP and yet accounts for only 2% of the global investment, this is the same percentage into which Australia is bundled in hence creating doubt on the commensurate nature of the investment China makes. Despite the constant call from Australia to have the investors from China, there have been this has not been as huge as it was expected. Indeed China has the fastest foreign direct investment growth into the country of Australia from the year 2007, this still accounts for a paltry 3% of Australia's total foreign direct investment and is seen to be only at number 9 in the list of large investors in Australia hence still more room for growth (Cripps T., 2014). A room that China has shown little interest or capacity or capability to occupy unlike the other trade allies that it has ran away from to embrace China despite the long historical relations it has had with them.

The economy of China has been widely referred to as not fully reliable in comparison to the other economies like the U.S.A. And Europe that Australia has shown lack of interest in over the last eight years. Though the economy of China, has over the past years been one that defined the economic tones globally, there are high doubts however whether the intended internationalization of these economic trends in the next decade will bear any fruits.

Before 1978, China had been experiencing an annual growth of 6% annually; at times it had severe setbacks in the economy and this was due to the control that the government had on almost all assets of China and the significant infrastructure and means of production and trade. However, this came to change in 1978 when the government of China came up with a mega economic reform agenda. This was in the form of encouraging the rural enterprises and the liberalization of foreign trade, private business was encouraged, state invested in industrial production, the state eased the price control system and invested much in the education of its workforce (Zuliu Hu & Mohsin S. Khan, 1997). It is worth noting that these controls are not entirely over to an extent the content of the media and the internet are controlled to some extent and the international media and bodies are a prime target (Washington Post, 2014). This creates an atmosphere that is not conducive to the investors who may bear with the controls but after a period of time may get weary and pull out. Industry and construction account for 46.8% of China's GDP. In 2009 around 8% of the total manufacturing output in the world came from China itself and China ranked third worldwide in industrial output that year (first was EU and second U.S.). Research by IHS Global Insight states, in 2010 China contributed to 19.8% of world's manufacturing output and became the largest manufacturer in the world in 2010. This lopsided economy further qualifies it as an economy that is not very reliable or not stable since most of the attention is given to the industry at the expense of other sectors and when the economy will not be able to sustain the one sided economy at the expense of the other, it will crumple under its own weight.

The other central tenet in the longevity of the economy is the political system yet the politics of the People's Republic of China take place in a framework of a single-party socialist republic currently under the Communist Party od China (China Internet Information Center, 2014). The PRC has been playing an increasing role in calling for free trade areas and security pacts amongst its Asia-Pacific neighbors. In 2004, the PRC proposed an entirely new East Asia Summit (EAS) framework as a forum for regional security issues that pointedly excluded the United States. However, this may not be enough since there will be need in the future to check the extremes of the government, especially on the grounds that it has contributed to the growth of the economy over the last decade. If the leadership changes to a person who may not be economically concerned, this could spell doom for the nation since there will be no other forces to keep the governance in check hence the economy crumbles.

Export trade is a major driver of China's economic growth. For this reason, China has embarked on economic reform policies to foster rapid development and attract Foreign Direct Investments.Once the government introduced legislations and regulations that are designed to encourage foreign investment. This has made China one of the leading FDI recipients in the world, receiving a record of $105.7 billion in 2010 as recorded by the Chinese Ministry of Commerce. This measn hebce that the main reason for get into…[continue]

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