VERIFIED SAMPLE WORK: CHINA (2015)

INTRODUCTION:
Global Political Economy deals both with Economy as well as politics. It is mainly
made for the academic scholars and learners so that they analyze economics from the
view point of international relation. The subject is a combination of different other
subjects like Macroeconomics, History, Political Science, Sociology, Cultural studies,
Development Economics, International Development, International Business,
Globalization, International Finance, International Trade etc. It generally gives a broad
view of the economics which generally the political parties of a country.
This branch emerged in around 1970s from International Scholarship (Cohn,
2016). Since then many theories have been developed in this context, some acted as
milestone and a few of them were completely unrealistic. But efforts are made in
evolving new theories. So, the trend changes over the time (Palan, 2013).
The subject is wide in nature and contains many topics. Here, the discussion has
been made on ‘The future of global political economic system’ which was discussed in
the week 7 lectures. The discussions are mainly from the view point of China that is how
it visualizes its future and what it plans to achieve in the world and in its own country
from political economic context in the near future.
DIFFERENT THEORIES TO BE EMBRACED IN FUTURE:
Mitchell & Fazi, (2017), in their book ‘Reclaiming the State’ discussed different
economic theories in the post war era as well as theories which can be applied in the
future. The authors has also pointed towards the early theories like Keynesian
Consensus, which stated that price stability and full unemployment was to be the sole
policy of the Government.
But this was an unrealistic situation and soon Neoliberal Theory evolved. The
new theory of Neoliberalization was based on free market. The economists believe that
Labour Government of UK which was under Callaghan and the French Socialists were
mainly responsible for this change.
Klein, (2016), also agreed with Mitchell & Fazi, (2017) that although Keynesian
Theory brought a revolution and was a milestone in forming the economic concepts yet
it had the unrealistic approach which could not go in the long run.
Till now, most of the west countries have followed the policy of Neoliberalization.
But slowly things are changing and the state is inspiring the corporate houses to look
after their financial interest first rather than fully concentrating on the general population
of the country.
The writer suggests Monetary Theory as a theory which is evolving and can be
used in the future. As per this theory, the state can take control of the market and can
create currency using its monopoly power so that majority of the citizen can be
benefitted from the act. The Modern Monetary Theory (MMT) states that the countries
which have its sovereign currency can alter their strategy. But the countries that are in
association with some supranational agency (for example Eurozone), such step is
difficult for them.
Mitchell & Fazi, (2017), drew their inspiration another book The Great
Transformation (1944) and the theory by Karl Polanyi. They stated that the concept that
division can be made between the state and market is not realistic, but state need to
intervene in the market. But Neoliberalism established different concept that state
cannot control the global financial market and the corporate that operate at international
level unless supranational agencies are formed.
But Neoliberalism theory is also aware of the power possessed by the state. So
this theory led the corporates take help from state so their interest is protected. The
process of de-politicization has somewhere reduced democracy and has enhanced
power in few hands. So this policy helped working class to strengthen themselves since
state always act in the interest of the capital.
But global financial crisis led to the loosing of hope of the countries on
Neoliberalism. Private debt was an essential part of Neoliberalism but that reached
beyond the limits and caused enormous damage. This failure led the economists
question the Neoliberalism theory. But power of the state is very important to increase
the standard of living of the people.
The authors mentioned the principles of Monetary Theory which states that
Governments need to gather funds by the way of taxation and borrowing so that they
can be spent on the public. This theory also accepts the fact that unemployment will
exist in the economy since it is not possible to spend the actual amount required to fully
employ the population and in reality the spending is much less.
Monetary Theory supports the concept of aggregate demand as well, which
states that the spending should be as per the aggregate demand, otherwise spending in
excess of demand will lead to inflation. Deficit levels and the debt ratios also have to be
mentioned. This theory actually differentiates between the countries which has their
currency with the countries without their own currency.
In the book, the authors have totally wiped away the use of Keynesian Theory,
although its importance in formulating the theories has been acknowledged. The
authors have not quite mentioned Neoliberalization as the practice of the future but
have mentioned its positive sides. They have actually recommended Monetary Theory
as the future practice. After studying all the theories, the conclusion is that Monetary
Theory has a very practical approach and need to be adopted by any country for the
progress.
CHANGES OCCURRED IN TWENTIETH CENTURY:
As mentioned by Blyth and Mark (2002), in their famous book, ‘Great
Transformation’, most of the twentieth century saw the following of Keynesian and
Polanyi’s theory which were very backward in nature and regarded the state need to
control the market for the welfare of labor, capital and land. Already discussed above
these theories were too backward in nature.
 But slowly new economic ideas were developed. These ideas were very useful
for the following reasons: (i) Suspicions were reduced. (ii) Different interest groups
started collide among them on their motives. (iii) The existing institutions were to be
challenged using different ideas. (iv) New ideas helped to construct new institutions. (v)
The expectations of different people were coordinated.
The book placed a high importance on the labors and their role in developing a
economy. The authors were from labour background and so were successful in
explaining the facts that labors first generated the funds and then they only used to
invest them to generate further capital.
So, in a way twentieth century faced a lot of changes and evolution. In spite of
the limitations in the earlier theories, they only helped to evolve the new ideas and
theory and so were important in a way. As the theory evolved, some great ideas and
theories were created for the future time to come. So, authors are completely right
regarding this.
RISE OF CHINA:
Hung, (2008) in his book mentioned the risk of China in the world economy. He
said that the immense exports from China mainly helped the country to emerge in the
world and enhance its economy. There was high inflation in the country but the exports
helped to ease the situation. As China increased its manufacturing activities, the
demand for raw materials and capital increased which enhanced the economic growth
of Brazil, Australia and Japan.
China has a huge population, which makes the labor very cheap, so many
countries turn towards China for labor, which ultimately led China from low income
group to middle income group. This shows that the economy of the country has
improved. To increase the power, China joined WTO and other developing countries in
G-20.
It has been considered that China’s adoption of liberalization theory has played
an important role in the development of the country. The concept of liberalization has
helped the domestic companies to freely deal with other foreign companies and which
helped the industry to grow. The liberalization has been made mainly in the context of
capital account (Bayoumi & Ohnsorge, 2013).
Economic reforms are absolute necessary and China’s constant effort to bring
about these reforms has been ultimately successful. So, China has risen in the world
economy and has been successful in enhancing its income and growth.
FEAR OF CRISIS:
Hung, (2008) also mentioned in his book that in spite of the economic growth,
the country’s population cannot completely stay in peace and the writer also mentioned
a new article. As per a news reported by Liaowang Weekly, economic crisis might arise
due to over capacity.
 It stated that as per the current scenario, the Government has been making
some excessive investment in different sector, but the domestic consumption growth is
on the lower side, which will cause the industry to reach its maximum capacity.
If the situation does not get controlled, then overproduction crisis might arise
which will lead to huge bankruptcy all over the country and unemployment will come in
complement with the bankruptcy. The rate of nonperforming loans will increase which
will ultimately cause the collapse of financial institutions owned by the State.
Japan faced a similar situation around the time of 1997 – 1998, when it was at
the peak of economic growth and was at the top position. ‘Tiger’s Miracle’ experienced
by Asia suddenly from a booming economy is also another example of sudden crisis
which aroused when the economy was at fully growth position. Economists believe that
those situations aroused mainly due to imbalance in the structure, which needs to be
avoided (Fujii & Kawai, 2012).
But China’s economy is growing constantly as per the trend during the past few
years. So, people are actually doubtful about the crisis theory being realistic. In fact
China’s economy was performing poorly before the global crisis but performed
comparatively well during the global crisis (Liu, Uchida, & Yang 2012).
But it is always beneficial to be careful so that any such situation can be avoided.
Here, complete agreement can be made with the writer that although Chinese economy
is on the rise yet crisis can happen any time. So, being alert is the best policy to be
adopted.
SOME FUTURE SIGNIFICANT EVENTS WHICH MIGHT CHANGE THE WORLD
ECONOMY:
1. Brexit:
Brexit, or Britain Exit is a much talked about topic in the current time. Britain is
planning to leave European Union (EU). Some economists are in favor of the activity
where as some are against it (Inglehart & Norris, 2016). Some time before, Greece left
the European Union.
Britain is planning to leave European Union for the following reasons. The Union
uses Euro as the common currency, but UK use Pound as their currency. UK feels the
amount of $16.3 billion is too high to be paid as the fees to the Union. UK has issues
with the rules and regulations of the Union, mainly Immigration Law, which enables that
citizen of any member country, can live and work at any other member country. Most of
the people settle in UK, increasing its population highly (Dhingra et al., 2016).
Brexit will have an effect in the following ways. Britain’s half of the exports goes
to the Union and half of the country’s imports come from the members of the Union. So,
if Britain decides to leave the Union then fresh negotiation are to be done.
UK is a powerful nation and it incurs maximum amount of expenditure on military
after US. So, if Britain leaves the Union then the power of the Union will decrease.
Although UK does not comprise only of Britain and there are a few other countries yet
England is the key player and most powerful part of UK. So, other NATO members of
the Union might feel a threat if such situation arises.
US and UK have a very cordial relation and they are collaborators in military and
trade. So, if Britain leaves the Union, the collaboration might be affected since Britain is
the significant part of UK. The continuing conflicts with terrorists and tyrants might
become fragile.
UK is the fifth largest economy in the world, so its separation from the Union
might create uncertainty in the world economy. The situation might be advantageous for
some countries that will not face the restrictions from European Union anymore and can
directly export to UK. But if the import policies of UK will be changed and the
immigration policies will be changed then the situation will not be favorable for any
country. So, post Bretix situations, new rules and regulations might create a high stir in
the world economy and can bring favorable as well as unfavorable changes for China.
2. US China Tariffs:
In the recent past, China and US has locked horns on trade. They are raising
disputes on each other’s tariff policy. As per the opinion of US, Intellectual Property
Rights are being violated by China and the country is practicing unfair trade practices.
So, US has requested World Trade Organization (WTO) to intervene.
As per the Ezrati (2018), if trade war between US and China will not cause much
harm to US, but will cause huge disadvantage for China. Only 8% of US exports are
from China whereas more than 30% of china’s exports are from US. In China market,
there are only 7.3% of US products but in American market 21% of the products are
Chinese.
So, this trade war will affect China’s trades mostly and its economic growth will
reduce. US President Trump has imposed 10% tariffs on Chinese products which will
reduce the economic growth by 0.4%. President Trump is proposing a plan to increase
the tariffs to 25% which will further curb the economic growth of China further (Lu,
2018).
Not only China but also US will be affected by the high tariffs imposed by china.
As per the economists, the economic growth in US will be curbed by 0.2%. China is also
planning to increase the tariff on US goods by 6% to 10%.
Since both US and China have a huge contribution in the world trade, so the
world economy is highly affected by the ongoing trade war. The increase in tariffs is
increasing the price of the raw material, which in turn is increasing the commodity price.
So, shipment of the commodities to most parts of the world is reducing.
3. China’s OBOR project:
OBOR or One Belt One Road is a project which is planned by Chinese President
Xi Jinping. The aim of the project is to make a connection between the countries
situated in Asia, Africa and Europe, so that they can coordinate among themselves. The
project includes almost 78 countries across the mentioned continents.
The purpose of the project is to modernize the ancient silk route by way of
constructing railways, roadways, power grids, maritime ports, oil and gas pipelines and
other associated infrastructure projects (Ferdinand, 2016).. The project actually consists
of two parts: “Silk Road Economic Belt” which include land based constructions; the
second part is “21st Century Maritime Silk Road” include the sea based constructions.
This project will help China to boost its domestic growth, economic growth and
the economic diplomacy. New markets will be created for Chinese products. China has
announced its investment plans of $1 trillion in the project. Not only China but many
countries will be highly benefitted from the project. Countries like Nepal, Kyrgyzstan,
Tajikistan and Pakistan are supporting China in this project and have signed deals with
China since their economy will also get a boost from the project (Huang, 2016).
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Hung, F. H. (2008, May 2). Rise of China and the Global Overaccumulation Crisis.
Department of Sociology, Indiana University, USA.
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