Political or Economic Globalization Between Thesis

  • Length: 10 pages
  • Sources: 9
  • Subject: Economics
  • Type: Thesis
  • Paper: #79989807

Excerpt from Thesis :

(Chandrasekhar and Ghosh, 2005)

Chandrasekhar and Ghosh state that the macroeconomic policy in China resulted in macroeconomic mechanisms that "differed substantially from those in predominantly market-driven economies. These differences relate to the availability of monetary or fiscal levers of the kind available in market economies, to the nature of the institutionally determined transmission mechanisms and to the outcomes of what appear to be similar policies. Only inasmuch as "economic reform" results in the generation of features characteristic of market driven economies in centrally planned systems, would the transition result in a gradual process of convergence in the nature of the policies, mechanisms and outcomes being addressed." (2005) It is related that despite the complete control of the Chinese government over the creation of money and fiscal policy "..., in the sense of using deficit financed expenditures to prime the economy, does not appear to have been a major thrust of the government." (Chandrasekhar and Ghosh, 2005)

Chandrasekhar and Ghosh state that the reform process "has resulted in a gradual change in all elements of this system. To start with, financial reform has created a situation in which banks, financial institutions and enterprises at provincial and local levels have more flexibility in providing and accessing loans, so the ability of the government to control sharp increases in investment and consumption has been to an extent reduced. Second, faced with the inadequacy of monetary levers, the government has quite recently attempted to use countercyclical fiscal policy to correct for recessionary or inflationary tendencies. Third, price reform has meant that a growing number of commodities have been removed from the administered price category, so that excess demand can lead to inflation. Fourth, trade policy reform has meant that excess demand can spill over onto the balance of payments in the form of a reduced current account surplus or a current account deficit." (2005)

In the earlier phases of the economic reform changes were made that were significant in addition to price reform. It is reported that in 1979 "...the government declared its intention to reduce the share of investment funds for enterprises granted exclusively from the cost-free state budget, and to gradually replace budgetary grants with bank loans which were subject to interest charges. This did result in major changes in the financing of investment. The share of budgetary appropriations in financing capital construction declined dramatically and that of loans and self-raised funds increased quite significantly." (Chandrasekhar and Ghosh, 2005) The role of monetary policy was increased through establishment of a two-tier banking system and by conversion of the People's Bank of China into the central bank and motivating the specialized banks in undertaking the commercial end of the banking business. The non-bank sector also underwent reform and this included "...the creation of a number of trust and investment companies, and financial intermediaries such as leasing companies, pension funds and insurance companies. Subsequently, foreign banks were allowed to begin business for the first time. However, even under the new arrangement it was in principle possible for the PBC to rein in overdrafts being run by these banks and prevent them from exceeding loan limits or quotas. Further, now the PBC could control the terms of its lending by charging lower rates of interest for loans within the credit plan and penalize unauthorized borrowing. Thus the ability of the PBC to realize its credit plan was strengthened by the reform." (Chandrasekhar and Ghosh, 2005)

The question of how the evolving macroeconomic scenario has affected the effort for poverty reduction in China and it is stated that the evidence "suggests worsening inequality in China...China's economic reforms have led to an increase in regional inequality." (Chandrasekhar and Ghosh, 2005) In fact a study conducted by the Chinese Academy of Social Sciences in 2002 states findings as follows: (1) increases in inter-regional inequality; (2) slow and inequalizing rural income growth; (3) regressive transfers to households and reduced transfer from rich to poor provinces; (4) slow growth in employment and inadequate social protection for retrenched workers; and (5) restrictions on and discriminatory treatment of migrants. (Chandrasekhar and Ghosh, 2005) Chandrasekhar and Ghosh (2005) conclude by stating that it is clear that "...the egalitarianism that the Chinese revolution ensured and the control state could exercise because of the persistence of substantial state ownership of and investment in capital assets as well as the continuance of the earlier financial structure and system, meant that the process of global economic integration was carried out under fundamentally different premises from that which occurred in India." In addition, it is reported that the domestic market "...for consumption goods was also significantly larger than proved to be the case in India. More significantly for our current purposes, the control retained by the Chinese state over financial institutions and the activities of the State Owned Enterprises allowed it to sustain high levels of investment and deal with volatility, to prevent." (Chandrasekhar and Ghosh, 2005) In addition, it is reported that the change to a market driven system in China while stimulating growth might be inequalizing to some extent. When China is compared to India, it is clear that India has "greater space for conventional macroeconomic levers" however it has failed not only in delivery "...the same growth success but has also been far less successful on the poverty reduction front. The implication is that macroeconomic flexibility in a market driven environment is not the best recipe either for growth and stability or for poverty reduction. India's growth experience, while more stable than for many other developing countries, was still nowhere near the rapid growth experienced by China and other East and Southeast Asian economies. This was strongly related to the reduced public expenditure by the Indian state in the period of reform, most significantly the substantial reduction in central capital expenditure (mainly on infrastructure) as a share of GDP, but also public spending directed towards the rural areas generally." (Chandrasekhar and Ghosh, 2005) Khanna (2003) writes that China and India are the world's next major players..." And it is reported that while China has discouraged entrepreneurship that India has encouraged free enterprise. The work of Srinivasan (2002) states that before China and India broke out of "their deliberate insulation from the world economy and the ushering in of market-oriented economic reforms and liberalization..." that the two countries "had similar development strategies." Srinivasan states that for both India and China "the issue of sustainability into the future of current growth rates is important." (2002) In a 2005 Business Week article entitled: "New World Economy: The Balance of Power will Shift to the East as China and India Evolve" it is reported that the cityscape in China is one in which it is easy to tell that rapid development is occurring while the cityscape in India is hardly indicative of the country's rapid evolution as India is still characterized by poverty and lack of development in its major cities. While there are inherent and ongoing conflicts between India and China it was reported in a news report of October 21st, 2009 that India and China had entered a climate change deal in which they will work in cohesion to address climate change and specifically on reducing greenhouse gas emissions. (BBC News, 2009) Chang reported in a 2009 Forbes report entitled: "India's China Problem" that India and China have made little progress, even though they have had 13 rounds of border discussions in the area of "...competing territorial claims in Arunachal Pradesh and Aksai Chin. Beijing and New Delhi are no closer to settling disputes that led the two giants to war in 1962 and that have, in recent years, hampered relations. Chinese officials see their nation on the rise and feel no need to compromise. The number of incursions by China's troops into…

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