Economics - How China's Economy Essay

  • Length: 7 pages
  • Subject: Economics
  • Type: Essay
  • Paper: #51780720

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Aside these impacts however, more salient effects are observable, such as a necessity to change internal practices of business. A relevant example in this sense is given by Wal-Mart, in its quality of America's largest retailer, which decided, unlike within the U.S., to allow Chinese employees to unionize (Dessler, 2006). The official approach of the Chinese leaders was that of implementing reforms which further capitalize on the low cost labor force advantage in order to continually attract investors.

5. The Market of Exchange Rates

The final step of this analysis is constituted by the look at China's currency policies, in an attempt to reveal if the policies implemented have played any part in the country's competitiveness within the global market. China's currency, the yuan, was pegged to the United States Dollar in 1997, but the link only lasted until 2005. Since then, the mechanism of resetting the value of the national currency each night is a secret one. The central bank officials argued that the value of the yuan would not always be expressed in dollars, but in other currencies as well, without however naming these currencies. Additionally, they stated that the value of the yuan would be established based on the movement of other international currencies, but they once again did not offer a complete information as to which would these currencies be (Bradsher, 2005). In other words, the Chinese authorities have implemented a tactic of national currency manipulation to suit their own needs.

It is highly probable that the gesture was done in an attempt to better control the country's international affairs and attract investors. Nevertheless, investors are now put off by the lack of stability. Another impact is observable in terms of imports and exports, in the meaning that a lower value of the yuan makes exports more attractive and imports less so. For exemplification, take the case of the United States as one of China's trade partners. A reduction in the yuan means that the American consumers pay fewer dollars for the products imported from China, which translates into an increased purchasing power. The overvaluation of the yuan has the opposite effect. Trade partners can also gain or lose money due to the fluctuations, meaning that they must use tools that cover currency exchange risks. These impacts are however generally observable in the short run, with the effects on the long run being fairly reduced (Morrison and Labonte, 2006).

6. Conclusion

Before the emergence of the notorious economic crisis, hereby referred as the financial tsunami, China was following a gradual reform program on most of its sectors; it was generally registering success, but some problems had yet to be addressed. Today, China is expected to not suffer major changes as a result of the crisis, but could impact the global economy through the absorption of labor force and a reallocation of resources.

Relative to the structure and behavior of the market, it can easily be observed that the largest global impact is raised by the manufacturing industry. Aided by low cost labor force, the Eastern Asian country has managed to attract numerous foreign investors, to consequently generate effects pegged to outsourcing, but also more salient impacts, such as changes in the approach to the human resource strategies. The national currency policy is also used as a tool to control and attract foreign investors.

References:

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