China's growth blesses the world
By Zhou Qing and Mo Wangui (China Daily)
Updated: 2004-10-20 15:18

[The authors Zhou Qing and Mo Wangui are research staff of the People's Bank of China.]

There have been articles in foreign media claiming that China's economy and manufacturing industry grew "too much and too soon."

Such claims indicate they have misunderstood the development process by which the Chinese economy merged into the global economy.

They do not understand that the adjustment in the Chinese economy reflected the needs of the globalization of the world economy, especially the contribution of the Chinese economy to the recovery and growth of global and regional economies.

They also neglected the timely reaction of Chinese macro-economic authorities and their appropriate adjustment measures to balance economic development.

The strengthened capacity of China's manufacturing industry is a result of economic globalization.

It is also a result of the development of multinational companies. Globalization is an inevitable trend of modern economic development. It enabled entrepreneurs' production everywhere by taking advantage of the areas' natural resources, capital, technology, information, management and labour, and the selling of products where there were demands for them.

China had extensive low-cost and high-quality labour resources, which have become a major attraction for multinational companies.

Presently, about 80 per cent of the world's top 500 companies have invested in China.

By the end of December 2003, China had ushered in a total of US$501.5 billion in actual foreign direct investment (FDI), making it the second largest destination for FDI, after the United States.

As a result, investment by foreign and domestic private companies has increased.

Manufacturing industries such as automobiles, home appliances and steel have expanded rapidly.

However, the expansion is a market behaviour.

Companies have compared the Chinese market with markets in other areas, and found the Chinese market more attractive.

In fact, developed countries have already enjoyed the benefits of the economic globalization.

Developed countries, which monopolized advantages of capital, technology and information, have secured huge profits through international exchanges of products, technology, capital, labour and information.

Multinational companies' global mergers and acquisitions have also led to globalization of direct investment.

Since the 1990s, multinational companies' direct investment has maintained strong momentum.

These companies have forged new types of strategic alliances and formed monopolies gradually.

During the past decade, multinational companies have begun to expand investment areas to reach basic industries.

They also increased investment in developing countries and took a leading role in many of those countries' economies.

Globalization has enabled developed countries to maintain advantages in industrial structure through adjustment. They have shifted labour-intensive and relatively technologically-backward industries, and industries with relatively severe pollution, to developing countries.

Meanwhile, they have managed to maintain a leading role in the world economy through global sales networks and their monopoly over high-end and new technology industries.

On the other hand, developing countries have been put in a disadvantaged position, because of lack of capital and technological backwardness.

Developed countries also have advantages in financial capital.

When conditions allowed, they entered the markets of developing economies.

If speculative capital flow is not managed appropriately, financial crises find their way to developing countries and hit their economies.

Because of the political advantages and economic monopolies, developed countries also have strong influence over market prices.

Developed countries could manage to raise prices for industrial products they monopolize, and keep prices down for farm produce and other primary products by developing countries on international markets.

Compared with developing countries, products produced by developed countries are competitive.

But developed countries have still managed to make international rules more favourable for their interests, relying on their influence over international organizations such as the World Trade Organization.

The key interest of the developed countries is to retain sustainable and stable economic development and cut unemployment.

In order to save costs, developed countries shifted labour-intensive industries and part of their capital-intensive industries to developing countries.

The result of this was a rise of these countries' profits and their productivity, as well as high unemployment rates, if structural adjustments were not implemented in a timely manner.

The United States is a typical example. It has shifted high-tech industries to countries such as China and India.

However, the increasing production capacity of China's manufacturing industry such as autos and steel does not pose a threat to the world economy.

It also does not lead to a price rise for raw materials or price drops for manufactured goods on international markets.

The impact of the Chinese price level on world export prices is very limited, because of the low ratio of China-made products to the world's total.

In 2000, China's commodity exports accounted for only 3.9 per cent of the world's total, and imports accounted for only 3.8 per cent.

If China's export prices dropped 1 per cent or import prices rose 1 per cent, it would only result in a drop of 0.04 per cent in the world's export prices and a rise of 0.04 per cent in import prices.

Foreign media also say that Chinese manufacturing industry's impact on the United States would evolve into a political issue, because China's trade surplus with the United States has reached about US$130 billion.

However, the trade deficit between the two countries only accounted for 22.15 per cent of the total US deficit in 2000, dropping from 45.94 per cent in 1997.

Although the rate rose slightly to 24.97 per cent in 2003 due to China's accession to the World Trade Organization, it was still lower than that in 1999.

Consequently, the increase in the US trade deficit and other issues did not originate from China. It was as a result of the absence of economic restructuring in the US.

Meanwhile, a majority of exports from China was made by foreign joint ventures.

Exports by these companies accounted for 48 per cent, 50 per cent and 53 per cent respectively in 2000, 2001 and 2002.

Foreign investment were big beneficiaries of China's exports, in turn, they also spurred the recoveries of their home economies.

On the other hand, even if China-made products sold at relatively lower prices because of the expansion of capacity, and affected the competitiveness of similar products made by other countries, they would actually benefit global consumers.

The lower prices were a result of market competition.

If developed countries including Japan and the United States do not speed up industrial structural adjustment, problems such as increasing of unemployment and the expansion trade deficits will continue.

Trade protectionism resulting from those problems will harm the healthy development of the world economy.

As an important country in East Asia, China's rapid and sound economic development has become a strong engine for the region.

China's accession to the World Trade Organization and the country's agreement to build a free trade zone with the Association of South-East Asian Nations will also greatly promote development of East Asian markets, and benefit all countries.

The relationship between China and East Asian countries is "win-win" deals, where they are not competitors.

A recent report by the World Bank has confirmed China's contribution to regional economic development in East Asia.

The report recognizes that China is a major engine in increased exports of East Asian countries.

China's imports from East Asian countries rose from 30 per cent in 2002 to more than 40 per cent in 2003.

China's strong imports have greatly spurred the domestic demand of East Asian countries, the World Bank said.

Foreign media reported that China has created more than 200 auto companies in several years, becoming the fourth largest auto-producing country.

They said that Chinese residents began to increase spending on cars rather than television sets and other home appliances, and expressed worries the monopoly capacity of auto companies could drop.

But China has developed its auto industry mainly through international joint ventures.

Presently, German auto companies account for more than 50 per cent of the market, while US and French companies account for about 15 per cent each..

Auto companies from Europe, the United States, Japan and South Korea are the major investors in and beneficiaries of China's auto industry.

When the global auto market is sluggish, market share became a real issue of concerns for foreign investors, especially in view of the expanding manufacturing capacity of China's auto industry.

With the aim of preventing the economy from becoming overheated, the Chinese Government has taken a raft of measures since the second half of last year.

The measures included curbing unwanted fixed asset investment projects and raising the bank reserve ratio three times.

The macro-control measures made remarkable achievements.

The fast rise in fixed asset investment has been curbed, growth in money supply and loans have dropped, and the prices for production materials have declined.

Uncertainties and unhealthy factors in economic development had been brought under control.

As a whole, China's fast economic growth is a blessing and not a disaster for the world's economy.

The Chinese economy has gradually become a most dynamic part of the world's economy.

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