Power of China From the Research Paper

  • Length: 15 pages
  • Sources: 15
  • Subject: Economics
  • Type: Research Paper
  • Paper: #80129768

Excerpt from Research Paper :

We must not forget, however, that, like most countries, China's economic leaps are tied to her political security. China's new model shows the world that economic security is as important as military security. Presently, though, based on the economic and political model of the world, China is focused on domestic economic issues and a slow but steady rise to socio-political power and role as a strategic player in global issues (Zakaria 2008 86-94). China has even begun to realize, possibly after the unfortunate events in Tianamen Square, that human rights are often tied to global economic issues. They can perhaps not understand why the West would act so emotionally on issues that occurred, say, during the Olympic Events China hosted, but they are aware that the world's public opinion is worth dollars -- both imported and exported. China still remains authoritarian, however, cracking down on Internet access, access to certain films and literature -- but far less heavy handed and more as a benevolent parent knowing what is right and wrong for its children, and protecting them from that which might be harmful (MacKinnon 2010).

Foreign Direct Investment -- FDI is the investment into production in a country by another country -- either by purchasing a company in the target company or by expanding operations in that country. FDI is done for many reasons -- cheaper wages, tax exemptions, incentives into the market, or the eventual control over an economic sector that has strategic financial implications. Largely because of China, the United Nations Conference on Trade and Development found that FDI grew in 2011 and 2012, after being flat in 2009 and 2010. It would be a misnomer, though, to say that China is the only country investing into the United States, which has typically been the world's largest recipient of FDI, over $200 billion annual, coming primarily from Switzerland, the United Kingdom, Japan, France, Germany, Luxembourg, the Netherlands, Canada and China. The typical paradigm is that foreigners hold larger shares of their investment portfolios in the United States if their own countries have less developed or varied financial markets, or if their countries have fewer capital controls that make it easier to invest more into U.S. equity and bond market positions (Forbes, 2008). This is particularly true for China because China has relatively underdeveloped domestic debt markets.

Looking at the above figure, we can see some interesting trends, particularly in the last few years. Since 2008, the number of actual deals has risen, until 2012, but the proportion of the deals to the total value of investment varies. For instance, in H2 2010 there were a large number of deals but they did not result in as great a fiscal investment. However, in H2 2012, deals were down, but value fiscally was up. This, in particular, shows

China's New Role -- in comparison to the Western nations, Asians are more strategic and patient. In the late 1950s and 1960s Japan quietly endured disparaging remarks about transistor radios perceived as "cheap" and the phrase "Made in Japan" was not at all complimentary. Of course as their economy grew, they became not only giants in the electronics world, but also in automobiles -- so much so that many Japanese brands are now considered top of the line products (Engelman 2008).

China seeks to attract investment so that it can restructure its economy - moving from low-cost manufacturing, which has been the most rapid and robust in growth over the last three decades, to higher and more value-added enterprises. In addition, as China experiences structural adjustments in the FDI flows, they can further invest more into the United States and move towards market niche control over certain organizations. In particular, as China invests in U.S. real estate and import-export companies, there is a dual benefit that allows them to earn money from their investment into a U.S. company as well as from investments made into China into companies that produce products for the U.S. (China Tops U.S.., 2012).

Similarly, China is aware that they must maintain good relations with the developed world, and acknowledges that they are still developing. Under Chinese scrutiny and influence, Asia is now more stable than it has been in over a millennium. Only two states are unsure about their survival -- North Korea and Taiwan, both inexorably tied to China's dominance in the 21st century. China's ties with the European Union, for instance, are dramatically improving. Exports are up, delegations and diplomatic relations cordial and now that the mutual threat from the Soviet Union is gone, both can concentrate on improving economic ties. Europe is unique in that it is less threatened by China because it is no longer an Aisan power. For the European Union, the most fundamental objectives are to court China as an investment and trade partner, to have China act as a responsible and coherent player in world affairs, and to take responsibility to help maintain global security and a strategy of peace (Crossick and Reuter 2007).

The United States, of course, is a major importer of Chinese goods which, in turn, ties China to the economic health and recessionary policies of the American Administrations. China has a vested interest in seeing economic stability and has been investing heavily in U.S. interests. While many in North America tend to focus on China's human rights record and the authoritarian nature of the Party mechanism, there is cautious optimism about the future. Scholars and politicians are unable to form a consensus on whether the West can cope with this future -- knowing that at present, the U.S. And China still remain the dominant powers in Asia. As China's power grows, does this then constitute the strategic threat of a modern China? (Blankert 2009).

China's Internal Issues- as we noted, the economic health of a region is tied to several aspects of its societal, cultural, and demographic/psychographic make up. This is also true of China, in which the success of her economy over the past three decades still leaves Chinese leadership with a number of internal issues that affect the way foreign relations are managed. Chief among these problems is the holdovers of state ownership within the economy. These monolithic entities still employ over 25% of the urban Chinese workforce and are typically not profitable. The Chinese government, though, facing massive unemployment and social unrest, continues to prop up these organizations, at least until workers can be organized to subsume control over the businesses and turn them into viable market operations (Do Rosario, 1993, p. 15).

Chinese population growth is yet another problem that extends into the economic and political sphere. The continued population explosion taxes resources (from social and educational to industrial), creates unemployment, and diverts needed capital investment from industry into less economically viable sources such as housing. Similarly, more mouths to feed engenders higher expectations, more personnel must be trained to supply these services, and the loop continues (Peng and Guo 2000 185-92).

Because China is such a vast country, the increase in industrialization continues to place a huge burden on energy needs. Both to maintain and increase its agricultural production and to modernize and rebuild outdated industrial infrastructures require extremely high amounts of fossil fuels. China's cities now have more drivers than ever before, with the demand for personal transportation also continuing to rise. China, however, is running out of oil and must depend on Middle Eastern imports. China depends a great deal on coal reserves, which may be vast, but are labor intensive to remove, extremely environmentally unfriendly, and not very efficient. This results in two conundrums: China is also dependent upon oil reserves in other countries (which may help stabilize the region), and China's rapid development has environmental consequences. China, however, gives lip-service to its environmental issues but makes the cogent point that the Western world already had its Industrial Revolution, and therefore hundreds of years with no environmental regulation (Yu 2008 138-42).

Strategically, China expects continued economic development to provide the key to enhancing political and natural power. China must, however, manage this growth carefully to avoid inflation, price and wage disparity, and a sense of divergence between rural and urban populations. China is very well poised for global economic integration, but sees efforts of the West, particularly the United States when under a Republican administration, to attempt the imposition of economic principles and political democracy. This, China believes, could be destabilizing to the developing world in the long-term, and a threat to China's own political regime (How China Views America 2010).

The reality of China's growth and global importance has not gone unnoticed in the upper eschelon's of the Western democracies. Australia and New Zealand, like Europe, are cautiously optimistic about China's emergence as an economic superpower. Geographic proximity makes China an idea trade partner, and relations continue to improve and move in that direction (Fung 1997). The EU is trying desperately to retain…

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