Implications of Chinas Rapid Economic Development

Implications of chinaw ars Rapid Economic victimizationGlobal degenerate and worldwide business environmentIf current trends continue, mainland chinaw atomic number 18 whitethorn be the worlds largest economy by 2050. treat the possible implications of such a development forThe world trading dodgeThe main implication of chinas economic annul is that mainland China has conk a major(ip) engine of world(a) economic and slew startth. From 20002005, Chinas economic growth has averaged 9.5 percent in truly terms but its imports have trip take from $225 billion in 2000 to $660 billion in 2005 (Bergsten et al, 2006). As a result of this, China alone has accounted for about 12 percent of the growth of global transaction, an impressively high share devoted that in 2000 it accounted for less than 4 percent of global trade. Indeed, although Chinas economy is a small fraction of that of the United States, in the prototypical one-half of this decade, Chinas trade grew so fast tha t it contributed half again as much as the United States to the expansion of global trade. As a result, should Chinas economy begin to approach, and compensate overtake, the United States as the worlds largest economy, global trade would potentially see a corresponding, albeit disproportionately, large increase in size.However, running buffet to this is that Chinas massive trade surpluses, most notably a $202 billion surplus with the United States (Bergsten et al, 2006), hugely exacerbate political frictions in several developed nations. This has led to pervasive shoves being brought in some(prenominal) countries to reduce their dependence on cheap, labour-intensive Chinese imports and to redress the ratio of these surpluses. Should Chinas economy grow to surpass the US, these pressures may become unbearable, and protectionist measures may win support in many nations. This would undoubtedly detriment the global trading clay however it would be likely to derive a fatal impact because, as several countries have appoint with the US, if you want to participate in global trade, you have to be ordain to deal with the biggest economy.The world fiscal systemChinas monetary policy currently presents two major issues for the world monetary system. Firstly, collectible to Chinas fixed peg to the U.S. dollar, the renminbi has depreciated on a real(a) trade-weighted basis since the start of 2002 when the value of the dollar began to depreciate significantly when compared to major currencies such as the euro (Bergsten et al, 2006). Second, even though Chinas productioniveness growth has slowed somewhat in recent years, the fact that it still exceeds its trade partners average, when feature with the artificial peg to the dollar, makes its goods disproportionately more(prenominal) competitive in global markets.As Chinas economy grows ever larger, and the US trade deficit continues to worsen, the invite for the dollar will fall further. This, combined with Chi nas position as the country with the worlds second largest surplus country, should lead China to allow its currency to jimmy against the dollar, and thus transition to a growth path driven more by domestic consumption than by farther increases in its immaterial surplus, which is already far too large for the rest of the world to accept. If China were to allow its currency to appreciate significantly it likely would lead to the sought after general appreciation of Asian currencies relative to the dollar, and would thus increase Chinas importance in a world monetary system no longer dominated by the dollar and the euro. Moreover, if China allows the renminbi to appreciate, it reduces the essay of stimulating a harmful protectionist response in the United States, and peradventure elsewhere.The business strategy of todays European and U.S. based global corporations.As Chinas economy becomes ever more important, global corporations will have to deal with China and Chinese companies and consumers if they wish to delay globally competitive. However, Chinas internal competitive pressures will grow ever stronger, with several firms manufacturing similar products and local firms becoming stronger players. Consequently, before a multinational firm can introduce a new product to China, it must first evaluate every aspect of its homegrown marketing strategy to see where adaptations may be necessary, especially if a firm is entering China with a culturally specific product, such as automobiles, foods or clothing (Dayal-Gulati and Lee, 2004).As Chinas cultural norms are so different from those in the West, global corporations will change magnitudely hold whole business divisions devoted to tapping into the Chinese market, and will seek strategical alliances with local businesses to benefit from their knowledge. Equally, as Chinas economy grows, increasing numbers of global corporations will begin basing more of their operations in China to take advantage of the str ength of the local economy and the comparatively low wage rates. However, this will not necessarily be a fundamental prowl, and will likely fit into many of these corporations existing global strategies of having separate offices for Europe, America, Australasia etc.Global good pricesChinas rise has important distributional implications for the global economy. Its massive exports of labor-intensive goods have led to significant declines in the relative prices of those goods. This, in turn, has put downward pressure on the relative wages of unskilled workers, even in pass on industrial economies. The other side of the coin is that Chinas imports are mostly skill- and capital-intensive investment goods, and commodities. Thus Chinas burgeoning import demand is raising the relative wages of skilled labor, the profit share of output, and commodity prices. Should the Chinese economy grow to match that of the US, without shifting its balance off from labor-intensive manufacturing, globa l commodity prices could rise significantly as Chinese demand for these commodities continues to rise.However, as Chinas economy continues to grow, and if political enemy to its export policies remains strong, China may well look to shift its economy away from resource heavy manufacturing, into the skill- and capital-intensive investment goods and services. This shift may also be driven by Chinas passion to reduce its dependence on the US, Japan Taiwan and South Korea, who offer almost 45% of Chinese imports, primarily electrical machinery and professional and scientific equipment (Economist Intelligence Unit, 2007). Again, in this area it may be political pressures, quite an than economic, that prove to be most pervasive.ReferencesBergsten, C. F. Gill, B. Lardy, N. R. and Mitchell, D. (2006) China The Balance Sheet What the universe of discourse Needs to Know Now About the Emerging Superpower. PublicAffairs.Dayal-Gulati, A. and Lee, A. Y. (eds) (2004) Kellogg on China Strategi es for Success. Kogan Page.Economist Intelligence Unit (2007) Country Report China. The Economist.