Introduction
Globalization is a process that slowly interconnects the nations of the world through trade, fruitful partnerships and cooperation. Members of the international community derive personal benefits to their economies, growing more productive, prosperous and technologically advanced as a result. In the socio-political landscape of the modern age, the US has emerged as one of the most powerful players. However, the emergence of other strong economies and rapid development of technology has high potential in rivaling the US’s economic prowess. China, specifically, quickly established itself as a considerable force and a strong ally (Witt, 2019). In the recent decades, China’s emergence into the global economic sphere has brought significant changes to international power dynamics and relations. Coming into the competitive sphere dominated by Capitalist nations such as the United States, China has utilized its industry well in order to become an important asset to its collaborators.
In order to maintain a competitive edge, it was necessary for the country to become more interconnected with others, which has ultimately opened up opportunities for growth. Gathering the considerable power of its large workforce and untapped potential of its economy, China quickly caught up to the major superpowers of the world. Both globalization and Foreign Direct Investments into the nation’s industry have allowed it to develop more quickly, becoming a source of valuable, affordable and widely available products. The paper concerns itself with China’s economic development. This work proposes that FDI’s, work of Multinational Companies, and relationships with other countries were among the most vital components towards China’s rise to prominence. Economic papers, research papers and discussions on the topic were examined.
Starting out from the country’s socialist roots, a look at its progression in the global sphere is attempted. Foreign Global Investments provide economic inertia, promoting technological development and informational exchange within the country. Globalization, and the facilitation of trade assisted China in securing partners around the world, and realizing its own niche in the global exchange of goods. Manufacturing exports remain as the main source of income for the nation, fueled by low tariffs and China’s unique strengths as a nation. Participation in WTO is another significant asset for the country, as it gives China both economic and social benefits.
China’s Closed Economy, a Look in the Past and a Way Forward
China’s Place in History, and the Incentive to Change
During the 1980s, China existed and operated separately from the rest of the world, largely due to the clash between the socialist government and the capitalist-dominated global climate. Similarly to the Soviet Russia before it, the country relied upon its internal resources and limited collaboration in order to sustain itself. Innovation or growth was limited, as were the sources for potential profits. However, with the decline of the USSR, the need to make new allies in both trade and economic relations became apparent.
A transition towards a socialist market economy, then, helped to find the appropriate balance between openness and state ideology. In accordance with this government structure, the government, with state-owned factories and businesses, oversees part of China’s industry (Yukyung, 2020). Central government maintains its overall control over both private business and local government, having mutual incentives towards collaboration (Lei & Nugent, 2018). In addition, the Chinese Communist Party, and Congress play a vital role in collaborating with businesses, who often have to operate in accordance with the wishes of the ruling party (Lei & Nugent, 2018). Private firms, foreign companies and other types of free market business structures exist simultaneously with more centralized market entities, forming a unique relationship between the state and regular business.
The process of opening up the economy brings with both positive and negative implications, leveraged by the prevalence of long-term benefits. While wage instability price fluctuations are expected on initial stages of the process, research has shown that globalization brings economic benefits to countries that engage in it (Rama, 2003). It is noted that wages of people within globalized nations grow more significantly than in non-globalized countries, signifying a higher economic strength.
Effects of the Capitalist Shift, Emerging FDI Influence
Within its perimeters, China has embraced the complicated implications of coming into contact with the wider world, maintaining its unique sense of self and focus. The present understanding of this change within Chinese society remains mixed, however the impact on the world at large is much more easily evident (Breslin, 2018). Ever since the trade has been opened, China’s economic growth remained among the fattest, allowing the country to double its GDP every 8 years (Morrison, 2019). While the emergence of a globalized economy opened up new possible problems, such as worker exploitation and corruption, it has also upset the global power balance significantly. In large part due to China’s rapid growth, the country was able to join the WTO and quickly rival the US in its production output and global influence. In addition, the process kick-started the growing relationship between China and FDI’s. Foreign investments, accompanied by the work of multinational companies, helped the manufacturing industry quickly recover and adjust to the needs of the open market. Interest in China’s market grew proportional to its growth potential bringing with it even further industry acceleration and a quicker flow of capital.
Joining the WTO and the Rise of the Chinese Manufacturing
The relationship between China’s manufacturing industries, the government and the WTO is especially complex. The inclusion into a global organization allowed the country recognition required in the public arena, while also imposing unique limitations. Due to a specific style of economy employed by China, the ability of the WTO to effectively hold negotiations or promote its policies lessens. From China’s side of the discussion, a membership promoted global growth, brining specific economic, social and political benefits.
Tariffs reductions helped the country to amass further profit, and incentivise exporting its products to other nations. In particular, manufacturing exports rose dramatically, forming the majority of exports the country produces to this day (World Trade Organization). From the perspective of the organization, however, the differences in organization and economic structure were a significant problem in working with China (Gao, 2021). Agreements and contracts regarding the nation’s admittance were among the most prolonged, partially due to the uniqueness of China’s economic order. Additionally, Chinese representatives objected to many changes proposed by the WTO, and insisted upon being shown consideration towards their “development model” (Gao, 2021). As a whole, it can be said that while the relationship between the two entities is complicated, it has brought significant benefits to both participants, including economic prosperity, respect and a voice in the global community.
Influence of Foreign Direct Investment
The Roots of a Fruitful Relationship
Foreign Direct Investment has a special relationship with China’s economy. During the initial stages of China’s opening to the global market, a cultural revolution took place. With the many changes coming into Chinese, society, an economic instability also emerged. In order to quickly bring the economy into order and establish a flow of capital, the Chinese government needed to promote outsider investments (Garnaut et al., 2018). As a developing nation entering a global space, the country attracted many investors and collaborators willing to use their money to grow its economy. FDI’s are among the most vital reasons behind China’s rapid growth.
Effects the FDI and Benefits for Chinese Industry
As seen on the graph, foreign investment into the country’s manufacturing has grown rapidly over the years, correlating with its lightening-fast growth. Hong Kong, British Virgin Islands, Japan and the United States are among the largest sources of FDI for the nation, being responsible for the majority of funds received by Chinese producers (Garnaut et al., 2018). As mentioned previously, FDI’s have a complex impact on the economy, providing not only economic, but social and technological benefits (Garnaut et al., 2018). Capital, new technology, information, skills and other intangible assets are all transformed into China’s own national strengths, using the outside influence in order to facilitate growth (Garnaut et al., 2018). Technological development has been and remains one of the most important notions in economics, allowing a country to improve its production capacity, increase efficiency and costs (Sun et al., 2020). Therefore, the ability to use foreign investment in order to procure a technological advantage is among the largest strengths of the Chinese economy.
Additionally, the presence of foreign investors poses China as a profitable business venture, in turn driving more economic traffic and collaborations. As noted by researchers, the country’s regulatory environment, and the ability to enforce contracts, have likely bore heavy influence on the desire of investors to contribute to the Chinese market (Contractor et al., 2020). FDI’s were, therefore, used by the Chinese government as a useful tool for procuring new manufacturing assets, improving growth, and attracting collaborators without direct intervention.
Globalized China, Results and Influences
Within roughly half a century since China’s emergence into the global sphere, it can be said that the nation fully embraced the concept globalization. Taking advantage of the world’s many countries, China successfully forged connections and paved its way forward as an irreplaceable cog in the international machine. As noted by Branstetter and Lardy (2006), China’s rates of market liberalization dramatically increased around the 1990s, and further expanded upon the country’s accession by the WTO. Authors further note that the heightened competitive and collaborative presence of China helped both itself and other nations (Branstetter & Lardy, 2006). Consumer welfare of Chinese people improved, while other nations around the world enjoyed the benefits of the country’s exports. In addition, scholars have noted that the interference of multinational firms into a previously closed economy, in addition to imports and exports, drives domestic market players towards innovation (Gorodnichenko et al., 2008). Greater competition and the presence of fresh forces inside the economic sphere brings forth the need to present better value, to develop more sophisticated methods of manufacturing, or optimizing production costs in order to stay relevant.
Conclusion
In conclusion, China’s economy has experienced unprecedented growth and development within the global space. Coming from a socialist nation with closed borders, the country has transformed itself into an open space for collaboration that still honors its traditions. Globalization, a force that came into prominence in the recent decades, became China’s central driver towards innovation, collaboration and improvement. With the need to compete in a public arena, China uses its assets and strengths in order to appeal to its partners and impose a large global presence. Through a combination of tactics, the country has managed to rival the influence of the US, an unstated leader within the world economy.
Using a unique system of economic governance, China combines state-managed business with privately-owned firms, using a fusion of socialist ideology and modern capitalism. While the adaptation into the modern global setting took significant time and effort, China experiences the financial benefits of its collaborations. The WTO remains an important partner in the country’s relationship with others, forming a complicated but respectful coordinated effort with the nation. Decreased tariffs and more potential exports remain as a source of profit for China, allowing it to function within a system built towards capitalist nations. In addition, other factors, such as the presence of FDI’s have helped the country develop. Direct investments from forms were implemented as a part of the government’s response to crisis, and since then have been widely utilized to this day. Investment in manufacturing brought many positive changes with it, including new technology, skill and talent – all of which were desperately needed in the quickly changing Chinese landscape.
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