Globalization’s Effects on China’s Economy and Trade Professor Wang Guo An Zhejiang Gongshang University, Hangzhou Mobile: Mobile:

The free movement of people, goods, services, ideas and money across national boundaries. Two waves: and 1945-Today; each changed the world and world trade; each was based on revolutions in information technology and logistics; each affected China, but in very different ways. Globalization:

The first wave; telegraph and steam-powered vehicles enabled people, products and information to move vast distances at unheard-of speeds New lands were settled and isolation of distant societies ended: Different results in China and Japan Global trade meant global production and global exchange of products, and growth of world-scale enterprises Inexpensive mechanical energy replaced human muscle, wind, and water; exploitation of wood and then fossil fuels

The second wave; 1945-Today; Computers linked by the Internet (I.T.) and containerization (Logistics) have produced even more radical changes The interaction between the Internet and containerization has enabled products to be designed anywhere, components manufactured anywhere and the final product assembled anywhere. This has been furthered by removal of political barriers to trade through adoption of GATT and WTO, and growth of market- based rather than command and control economies (or a blend of the two)

China has been the preferred base for global production in the last three decades because of relatively low cost factors of production China has enjoyed substantial labor cost advantages, not only in factory labor but, equally important, in its abundant supply of engineers, scientists and technicians who, until recently could be employed at comparatively lower salaries than comparable professionals in already- industrialized countries. In the 1980s and 1990s land for industrial development was available at comparatively low cost near major port cities. Low cost capital has been available from foreign investors attracted by potentially high returns from market growth in a developing country with a strong, stable central government.

China’s Growth has been assisted by Mercantilist Economic Policies THE ECONOMIC POLICY OF Mercantilism 重商主义 ( 对外贸易必须保持 顺差，即出口必须超过进口 ) with government direction of domestic and foreign economic policy so as to acquire foreign exchange and maintain domestic industries through running trade surpluses is usually associated with early modern Europe, but the Chinese have been “mercantilists” since trading began with foreigners in the roman era. Today China still follows that policy and has adopted many elements of Japan’s postwar success, so far minus free convertibility of the Yuan.

THAT was then, but this is now; changes in world trade that benefitted China may now be reversing with major effects As a major importer of vital raw materials and foodstuffs, China has benefitted from three decades of low commodity prices Global commodity prices now appear to be rising, a rise that, ironically is caused in part by rapid economic growth in China and India

Basic facts about China Fastest growing economy, annual growth rate about 9.5% since 1978 GDP:US$6.56 trillion in 2010 No. 2 largest trading nation Largest exporter and second largest importer No.2 economic power in 2010 Largest foreign exchange reserves

Objective picture of the present China Economic growth at the annual rate of about 9.5%, three times as fast as the USA World’s second largest economy in terms of GDP. Its GDP is expected to surpass USA in 2019; but its GDP per capita is only US$3800 in 2010, only 12% of Japan’s and 10% of USA’s, ranking after 100 th in the world. 150 million Chinese live under the poverty line.

Objective picture of the present China No. 2 trading power and biggest exporter in the world, its trade volume amounted to US$ trillion 万亿 in China’s exports and imports amounted to US$ trillion and US$ trillion respectively with a trade surplus of US$18.31 million. China maintains a large trade surplus with USA, but 60% of its exports to the USA are produced by US companies in China. Largest manufacturer in the world after USA was the largest for 110 years, but most of the foreign companies’ R &D and marketing centers are in developed countries, such USA, EU and Japan. Chinese workers are paid only a very low salary and are exploited and its environment polluted and natural resources exhausted.

Objective picture of the present China The economic miracle in China in the last 32 years, but it is made by the world. China is only a small shareholder in the economic miracle, most of the profits have gone to the transnational companies from developed countries. Foreign companies in China have contributed a lot to China’s GDP.

Objective picture of the present China Largest consumer of natural resources, increasing at the rate of 8.9% in the last 10 years. Second large financial revenue in the world, but China’s medical expenditure accounts for only 1.2% of its GDP. Most of the farming population have no medical or social insurance.

Objective picture of the present China Olympic Games hosted in Beijing in Manned spaceship launched in 2003, 2005 and Foreign exchange reserves: trillion US$ (Aug 2010), No. 1 in the world. World Expo hosted in Shanghai in 2010 Fastest bullet train in the world 2010 Biggest investor overseas among developing countries US$25 billion during ) A peacefully rising power in Asia and in the world

This is what compels China’s drive to acquire resources To accommodate resources demand that is outstripping 超过 domestic supplies, China continue will continue to acquire: Energy (East Africa, Iran, offshore China, Russia and, The “stans”) Industrial raw materials (Australia, Canada, Indonesia, Africa)

China’s Increasing Outbound FDI China’s Outbound FDI increased to over US$ 68 billion in 2010, a 17% increase just from 2009, accumulative total US$300 billion, the fifth outbount Foreign Direct Investor Increasing focus on company acquisition in developed countries; 50% of 2010 FDI went to Australia China’s actual outbound FDI may be much larger due to “round tripping”; Hong Kong accounts for over 50% of China’s inbound FDI

The Boao Forum for Asia Perth Conference was held in association with the Government of Western Australia in Perth, Australia on July 11-12, Its theme is Energy Resources & Sustainable Development BFA Perth Conference 博鳌亚洲论坛珀斯会议

Western Australia is BIG WA’s population of 2.2 million people live across an area three times as big as Texas Perth is the western gateway to Australia

Perth Statistics Perth, Western Australia is Australia’s strongest economy. 10 % of Australia’s population 22% of Australia’s jobs 35% of Australia’s GDP 40% of Australia’s Exports

Perth Statistics Perth, Western Australia is Australia’s strongest economy. WA exports to China in 2010 reached A$41billion, accounting for 40% of WA exports and 70% of Australian exports to China. WA exports to China grew from A$4 billion in 2002 to A$41 billion in 2010.

At the same time, China’s exports face increasing regulatory obstacles in foreign markets “Mutually-assured- protectionism” due to: Foreign direct investment in China being hindered by Chinese legislation such as the new anti-monopoly Law Foreign receptivennes to Chinese exports declining duce to product safety issues, domestic job losses and “anti-sweatshop legislation 反 血汗工厂的立法

Demand for Chinese exports may also be diminishing in developed country markets: THE “GOOD OLD DAYS” China-based Companies Sell (Mostly) Consumer Products To US importers; Acquire USS$ Balances Which Are Deposited In Chinese Banking System Chinese Holdings Of US$ Converted Into purchase of US debt; maintaining relatively low US interest rates This enabled US consumers to keep consuming Now, US and EU consumers are increasing “cash-strapped” 缺乏现 金的 and are reducing discretionary 任意的 spending

China’s Changing Role in World Trade CHANGING GLOBAL MANUFACTURING AND SOURCING STRATEGIES DUE TO: INCREASED LOGISTICS COSTS CHANGES IN COST/AVAILABILITY OF TRADE FINANCE INCREASED PROTECTIONISM DUE TO BREAKDOWN OF “WTO CONSENSUS”

NOW CHANGING IN CHINA: RETOOLING 更换 THE WORLD’S FACTORY THE LIKELY END OF THE “CHINA PRICE” DUE TO DECREASE IN NUMBER OF COMPETITORS, AND COST INCREASES DUE TO MORE EXPENSIVE INPUT FACTORS. NEW LABOR CONTRACT LAW INCREASES RIGHTS FOR LOCAL WORKERS AND MANAGERS MULTINATIONALS EMPLOY CHINESE FACTORIES FOR DOMESTIC PRODUCTION RATHER THAN AS EXPORT PLATFORMS

Now changing in China: Refocusing the World’s Factory High value manufacturing moves from expensive, accessible coastal locations to less expensive, relatively less accessible interior cities, lengthening supply chains. China’s stimulus program emphasizes increased domestic spending with linked growth in imports from Asia. Low value domestic and foreign-owned factories move to the next China[s]”

The Challenge Facing China Unlike the USA, but like Japan, China must be focused on world trade in order to acquire needed resources for domestic consumption that are not available within China. To earn the necessary foreign exchange to pay the increasing cost of such resources, China shifts domestic manufacturing to concentrate on exports of high value- added products and Chinese companies establish subsidiaries in foreign countries and acquire foreign companies. These developments mean increased opportunities for graduates with the skills to take advantage of them.

What happens now.....? Thank you very much! Welcome your questions.

Thanks 杭州 浙江工商大学 王国安教授 Mobile: Thanks to Dr. Stephen Todd Rudman