GRACE BRACKS REDLANDS 2020 HSC ECONOMICS

For an economy other than Australia, analyse the influence of

globalisation on the economy in terms of economic growth and
economic development
18/20

The impact globalisation has had on China is reflected through economic growth and economic development.
Globalisation is the increased integration between different countries and economies whereby there is an
increased impact of international influences on life and the economy.

For China, free trade has catalysed quicker growth rates and demand for manufacturing exports, therefore
being beneficial for China’s economic growth and quality of life thanks to the USD $136b it receives from
Foreign direct investment. However, globalisation has brought about the inherent cost associated with any
capitalist economy those of income disparity, environmental degradation and vulnerability to contagion effects
requiring structural reform within the Chinese economy.

Since the introduction of the Open-Door Policy in 1978 (a policy which opened China up to international trade
and foreign investment) and the creation of special economic zones in 1980-1984 to attract foreign investors
China has experienced periods of strong economic growth. Economic growth is the increase in the amount of
goods and services produced per head of the population over a period of time.
In 1978 China’s gross domestic product per capita was USD$156, today their GDP per capita is USD$9,771
reflecting the overall benefit China has experienced due to the opening of China to the world markets.
However, in November of 2015 China logged its first growth rate under 7% since the 1978 open door policy,
revealing vulnerabilities and reflecting the importance of domestic demand and a source for growth.

China’s increased international convergence and interest from Transnational corporations has increased
China’s manufacturing exports but (ADD STATISTIC), it has also led to dependence and volatility.
An example of the negative effects of international convergence was in 2015 when China suspended the share
market to stop the ‘herd mentality’ from global economic downturn, this consequently led to a 15% drop in
the Shanghai composite index in the beginning of 2017.
To further combat decreasing growth rates China opened its equity markets in 2018, lifting the foreign
investment quota, injecting billions of dollars into the Chinese economy contributing to the highest growth
rates in 2 years sitting at 5.8%, following this China also passed new legislature (a foreign investment law)
allowing China to set up six new free trade zones which further contributed to a positive movement in
economic growth thanks to globalisation. In order to stimulate exports in 2015 Beijing aggressively devalued
the Yuan knocking 3% off of its value, the PBOC stated that the devaluation was part of its reforms towards a
more “market-orientated economy” this was alarming given China’s dependence on manufacturing exports.

Figure 1 shows the international business cycle, since China’s joining of the World Trade Organisation in 2001
China has experienced increased international convergence, meaning higher vulnerability to contagion effects
during periods of global economic downturn such as the GFC from 2008-2009 and the European Debt Crisis in
2011-2012.

FIGURE 1: The International Business Cycle

GRACE BRACKS REDLANDS 2020 HSC ECONOMICS

This decline in growth rates for China not only emphasised the negative effects of globalisation of economic
growth but, also reflected importance of domestic demand as a source of growth.

China’s long-term increase in economic growth positively correlates with economic development seen through
material indicators China’s GDP growth p/capita was 6.60% in 2018, but also in non-material indicators China’s
HDI rose from 0.36 in 1980 to 0.75 in 2019 reflecting benefits from globalisation in quality of life.
Globalisation has also had a positive effect of poverty, in 2013 9.2% of the Chinese population lived below the
poverty line of US$1.25 p/day, today that figure stands at 3.1%, showing the improved standards of living in
China.

However, China’s globalisation has not benefited all provinces. Large disparities in the distribution of incomes
remain across provinces. Shanghai, Beijing and Tianjin (major metropolitan cities) had income levels 150%
higher than national average, whereas Guizhou, Gansu and Tibet were 50% of the national average. This issue
highlighted through Chinas low urbanisation rate of 58.52%, the problem is exacerbated by increased rural-
urban migration within China’s population, creating a self-perpetuating cycle where decreased population
leads to worse facilities which leads to more migration and an increasingly dualistic economy. However, as
many as 400 million people have been lifted out of extreme poverty in the last three decades, reflecting an
overall benefit from globalisation.

The Chinese environment has also experienced the effects of globalisation. China’s air pollution has reached
almost fifty times World Health Organisation-recommended levels, with levels of PM2.5, tiny airborne particles
considered most harmful to health, reaching 1,157 micrograms per cubic metre in Shenyang.
The Chinese government has recognised and begun to address the environmental problems that have
occurred because of its rapid economic growth and industrialisation. It has set targets for reducing pollution
levels and has committed US $130b in 2019 in new spending to achieve these environmental targets, the
Chinese government estimates by 2030 they will be allocating US $350b to environmental causes, reflecting
negative effects of globalisation on China’s economic development.

To conclude China has experienced positive and negative effects of globalisation such as, economic volatility
from contagion effects, disparities in income and environmental degradation but also has had high economic
growth rates leading to improvements in the quality of life in China.
GRACE BRACKS REDLANDS 2020 HSC ECONOMICS