4 Pages, Grade: very good
The assignment that follows has been written by, and is entirely the work of, Daniel K. Bergmann, MBA.
University of Oxford Course
The New Economic Powers
Within the global economy, who are the winners and the losers from the rise of China ?
Let China sleep. For when China wakes, it will shake the world.
Napoléon Bonaparte (15 August 1769 – 5 May 1821)
China is the country and the economy, that shows all records of growth at present. Even under the so named “New Economic Powers“, the BRIC-states, China is the most sucessful rising political economy with the at present most powerful growth and the future prognoses are outstanding. (Yueh, 2008; Wilson/Purushothaman, 2003; Wilson/Purushothaman/Stupnytska, 2005)
China with it´s nearly 1.3 bn. inhabitants is a huge economic power, so that the inhabitants, next to the Indians, are seen as the future decisive consumers of the world economy.
Beside the positive vision of a rising nation, there is the question, who are the winners and the losers from the rise of China, because already „Napoleon“ prophe- sied, as quoted above, that the world will shake, if China awakens. (van Ess, 2008, p.77; Pilny, 2006, p.152)
How will the ascent of China affect on the participants of the world economy, who are the winners and who the losers?
For centuries China was, compared with Europe, superior and leading, as well as in technology and science, already Marco Polo told about the dimensions in those Chinese thought and lived, already at that time. The populations of the cities were huge in relation to the European cities, so, it doesn't surprise, that the present rise of China has so dramatic effects on the world economy. (Hirn, 2005, p.16-17)
With 1.3 bn. inhabitants, the Chinese alone already contribute with the selection of their foods, for example the imported agrarian-goods, to changes of the global economy. (Mankiw, 2003, p.137)
Beginning with the opening of the Chinese political economy, the opening for the export and import and the force of the foreign direct investments, a growth-push has been caused in China. (Lin/Yao/Yueh, 2006, p.270)
Already before the WTO-accession of China, the country experienced an investment- boom, that continues unbroken until today, since 2002, China is the leading desti- nation for foreign direct investments. (Reisach/Tauber/Yuan, 2003, p.111; Yueh, 2003, p.5)
As China is the manufacturer, that operates world-wide with lowest costs, for China as production-location, exist an absolute comparative advantage, what leads to the fact, that other countries import merchandise from China, or even the companies from other countries shift to production in China. (Yueh, 2003, p.6)
Since the companies transact strategic investments world-wide and new production- locations are erected gladly in China, in order to lower manufacture-expenses, and also to put down a step into the Chinese market. In the respective countries, the old and labour-intensive jobs are in danger and threatened from reduction. (van Ess, 2008, p.68)
Additionally there is the reducing competitiveness of the products, that are produced with essentially higher personnel costs, since these stand in the competition with the merchandise produced in China, that was produced at more favorable conditions in China.
Since China's production is wide ranging, from textiles and clothing to low technology products to middle - and hi-tech products, it stands in competition with almost all countries. China´s export-mix corresponds to one of a country with three times higher income per capita. (Yueh, 2003, p.7; Venables/ Yueh, 2006, p.15)
While China profits through the technology-transfer and also new jobs are created, the companies lose market-shares and jobs in the occidental acreage. (van Ess, 2008, p.69; Hirn, 2005, p.81; Pilny, 2006, p.154)
Through the climbing production-volume and of course also through the growth in China, the inland-demand of the Chinese grows, as well as also the government has seized numerous measures, to develop the infrastructure.
These factors, together with the other countries with climbing demand at raw materials, has led in the last years to massive increase rates of the raw material- prices. Yueh writes that China is responsible for 50% of the raw material-price-boom. (Venables/Yueh, 2006, p.13; Pilny, 2006, p.154)
The raw material demand of China has led to an increase in the raw material prices, what is admittedly pleasant for the direct neighbour Kazakhstan, as commodity- supplier, for the companies and especially for the industrialised countries however it has a dis-advantageous effect. (Rogers, 2005, p.171 and p.179; Wilhelmi/Vaupel, 2007, p.134; Pilny, 2006, p.154)
The growth of China has led to a production-displacement, as well as -shifting in favour of China, with contemplation of the individual areas, is clear to recognize, that the countries with a similar export-mix like China, belong to the losers. (Venables/ Yueh, 2006, p.13)
In Latin America, Yueh estimates that 60-70% of the exports are threatened. (Venables/ Yueh, 2006, p.13)
In Mexico, for example similar tendencies are located for the area of the textiles, through the WTO Multi-Fibre Agreement (from 2005), with the export limitation, Bangladesh and Sri Lanka that dominates the textiles-sector, profit at least. (Hirn, 2005, p.75-76; Venables/Yueh, 2006, p.13)
Through the changes in China, away from the labor-intensive products, to the production of high tech products, more and more industrialised countries get into the same situation, to be no longer competitive and to record losses. (Hirn, 2005, p.77; van Ess, 2008, p.77; Venables/Yueh, 2006, p.13 ; Reisach/Tauber/Yuan, 2003, p.107)
Only the old tiger-states have virtually regardless survived the shifting in favour of China, since these have recognized the sinking export-sales and have adapted their export-mix, so that shifting of the production occurred and the export-goods have changed. (Yueh, 2003, p.8)
The other Asian countries, the new tiger-states, enjoy mutual trade and a rapid growth. (Venables/Yueh, 2006, p.15; Yueh, 2003, p.9)
Concluded according to opinion of the author can hold on, that the losers are all the countries, that have not put itself in time on the changed conditions and also cannot profit in any way from the growth of China.
In the principle, growth originates through trade and according to positioning the companies and political economies can participate, besides a political economy misses it to adapt itself to the changed conditions of the world economy.
As positive example, the alignment of the new tiger-states can be named for foreign direct investments that have sought other manufacture-areas and can participate beside China. (Yueh, 2003, p.11-13)
The countries that stand in the direct export-competition with China are the clear losers, like the experiences from Latin America shows. (Venables/Yueh, 2006, p.13)
The industry-states have to fight with massive changes, what means, that jobs will be destroyed. These political economies can profit through lower prices of the import- goods from China however, also as through the climbing export to China, the same is applied to countries with low incomes. (Venables/Yueh, 2006, p.13)
Long-term, the political economies will adapt themselves and must find their new place in the world economy.
What certainly appears is the clear winner, China – one of the new economic powers.
Daniel K. Bergmann, MBA
Hirn, W. (2005): Herausforderung China – Wie der chinesische Aufstieg unser Leben verändert, S. Fischer Verlag, Frankfurt am Main.
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Rogers, J. (2005): Rohstoffe – Der Attraktivste Markt der Welt, Finanzbuch Verlag, München.
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Wilson, D./Purushothaman, R. (2003): Dreaming with the BRICs: The Path to 2050, Global Economics Paper No.99 – October, Goldman Sachs
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Yueh, L. (2008): Introduction to the BRICs and China´s political economy: Lecture transcript China (Oxford University Course: New Economic Powers – NEP1, Lecture Part 1.2), Oxford University, Oxford.
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