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China’s plunge into the world economy: prudence or poor judgement?

China, post-Mao, is dramatically engaged with the world economy. Export growth has exploded by a massive 500 percent since 1980. China now trusts in exports as the engine of growth and the safety net for a domestic restructuring which has created high levels of urban unemployment. What are the consequences of abandoning Mao’s strategy of self-reliance?

A University of Warwick report asks, has China really benefited? Can her exports be described as ‘Chinese’ when the technology and components used in their manufacture are imported? How precarious is China’s dependence on external economic circumstances?

China has suffered intense international criticism for failing to liberalise trade. Prices of land, labour and key industrial inputs such as energy and steel are still largely set by the state. Import tariffs remain among the highest in the world. China has played off foreign companies and forced them to sign agreements to export a fixed proportion of production - 70 percent in the case of Sony.

The regional implications of China’s economic strategy are profound. Is there scope for so many Asian countries to scrabble for the same foreign direct investment to produce the same goods for export to the West? By copying their policies, China has undermined the economies of its Asian neighbours. In many ways the 1997 East Asian economic meltdown represented a belated response to the 1994 currency devaluation which made Chinese exports more competitive.

Further findings include:

Economic information remains the monopoly of China’s official news agency and China calculates export statistics differently from the rest of the world so it is hard to calculate precisely the size of the Chinese economy and the value of exports.
Hopes that Chinese suppliers would supply foreign companies have been dashed. The unreliability of Chinese supplies forces investors to continue to import key components.
As imported components account for 90 percent of the value of exports from foreign enterprises, China now runs trade deficits with Asian states providing component imports.
Export growth has exacerbated regional disparities as foreign direct investment has flowed only to the coastal provinces.
Japan’s trade with China is effectively inter-company trade between different branches of Japanese multinationals.
Employment created by the switch to export of assembled goods has been low wage and low skilled.

Have Chinese policy-makers boxed themselves in? The report predicts that:

China’s over-reliance on external markets relative to the domestic market, together with massive bank debts due to bad loans to the state sector, exposes it to the same high degree of risk that engulfed China’s neighbours in 1997.
As long as the regime attaches such value to employment as a guarantor of social stability, the chances of China moving to production with greater added value are slim.
After positioning China as a low cost assembly site in an international division of labour, the national government and provincial authorities have little scope for manoeuvre when negotiating with foreign companies.

Source(s):
‘The politics of Chinese trade and the Asian financial crises: questioning the wisdom of export-led growth’ Third World Quarterly, Vol. 20/6 by Shaun Breslin 1999

Funded by: UK Economic and Social Research Centre

id21 Research Highlight: 9 May 2001

Further Information:
Shaun Breslin
Centre for the Study of Globalisation and Regionalisation
University of Warwick
Coventry CV4 7AL
UK

Tel: +44 (0)24 7657 2533
Fax: +44 (0)24 7657 2548
Contact the contributor: csgr@warwick.ac.uk

Centre for the Study of Globalisation and Regionalisation, University of Warwick, UK

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