Rise Of Bric And Role Of China

Research Topic
What are the key factors that have led to the rise of the ‘BRICs’ (Brazil, Russia, India and China) in the
world economy? Focusing on ONE of these countries, examine how its position is changing in the
world economy in the context of the current global recession.

Structure
1. Rise of BRIC and factors contributing the rise

2. China – The rising dragon, (most influential amongst BRICs)

3. Global financial crisis

a. Impact on China and major challenges ahead

4. China’s global foot prints across three major dimensions amid financial crisis

a. Trade,

b. Foreign investments, Aid & human rights, migration

c. Global governance,

d. Environment

5. Conclusion - China’s contribution in rebalancing global growth

Abstract
Although explored by a trans-nationalist, the term ‘BRIC’ has gained momentum with the recent
summit held in June last year. The rise of BRIC is associated with major global shifts. Also there are
opportunities and challenges with this rise. But there are common factors which made BRIC
increasingly noticeable atleast during last decade. Surely, the unprecedented economic growth and
the burgeoning middle class are amongst the visible factors. The other factors are structural and
unique advantages. During the past decade, much has been contributed by the rising demand in the
global economy where survival of the fittest is very much in practice. More importantly, the
dimension of financial crisis makes the case of exploring one of the economy i.e. China much
interesting. The rise of china, its competitive advantage and sustainable growth has its roots in Mao
era and the delayed focus on industrialization turned out to be boon. Long ago (some 25 years back),
all I use to know about china is their hard work and their story of riding bicycle rather than using
automobiles (to preserve the environment amongst other the other reasons). Contrasting to this, in
2009, China became world’s biggest car market. This huge shift in Chinese affordability has its global
repercussions (both due to causes of this change and its further impact). China is in its way of
becoming a global superpower and in the era of financial crisis, it comes out that China has an
increasing role to play in rebalancing the global economic growth.
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Rise of BRIC
With the rising middle class in emerging economies, rising concerns of dependency over fossil fuels
which has its contributions to environmental degradation, future energy security & threats of
volatility and shift in global production networks, the BRICs is emerging as a “new pole”. With the
recent BRIC summit held in June 2009, it has been revealed that the idea behind ‘BRIC’ is towards
working out common approaches to issues concerning the development of the global financial
architecture and of the world economy as a whole. There are also other possibilities of coordination
in energy, agriculture and high technology (Russia Now, 22nd Nov., 2009). The factors leading rise of
Brazil, Russia, India and China although being geographically distant and with varying interests would
lead to detrimental outcomes which can potentially lead towards a new international political
economic order.
Over more than a decade, there has been an impressive growth in BRIC economies which has been
backed by relative political stability and institutionalization in these nations. The common factors and
characteristics of this rise in ‘BRIC’ economies are:-

•Size of the economies
•Fastest growing economies
•Diversity
•Biggest source of labour
•Rising middle class
•Rising consumption Demographic factors
expenditures •Low market penetration
•Trade dependency
•Rising f ocus on innovation
Income & demographic
Changes

Growth Economic Currency
Structural
factors Growth Rise of BRICs Movements factors

Global demand
patterns
•Mature markets

•Brazil – Commodities and •Declining reliance on Aid
natural resources •Low Fiscal def icits
•Russia – Technology, oil Unique advantage •Current account surplus and
•India – Technology, IT& ITES large f orex reserves

•China – Cheap abundant •Declining central
labour government’s consumption
expenditures
•Positive change in business
environment

“Factors and possible outcomes – Rise of BRICs”

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Growth factors and similarities
There has been an impressively sustained high per capita GDP growth more than a decade (with
china more than 3 decades) supported by decline in population growth rate. With this, BRIC
economies have become a biggest source of labour with rising female participation and declining
unemployment levels (less that 10%). A good amount of contribution to this growth goes to rise in
demand, investment in innovation and human capital and rise in total factor productivity. While
China and India were shining because of their trade in manufacturing and services, Russia and Brazil
gained proportionately due to rise in demand for commodities amid a sustained rise in prices until
global financial crisis. This rise in growth is associated with changing consumption patterns in these
countries which would embark upon a significant shift in global production networks.

GDP growth per capita (annual %)
14

12

10

8
%

6

4

2

0
2000 2001 2002 2003 2004 2005 2006 2007 2008
-2

Brazil China India Russian Federation

Source: World Development Indicators, 2009

Central Government's final consumption expenditure (% of GDP)
25

20

15
%

10

5

0
2000 2001 2002 2003 2004 2005 2006 2007 2008



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Trade (% of GDP)
80

70

60

50
%

40

30

20

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008

Brazil China India Russian Federation 2 per. Mov. Avg. (China)


Merchandise trade as a % of GDP
80

70

60

50
%

40

30

20

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008



Trade in services (% of GDP)
16

14

12

10

8
%

6

4

2

0
2000 2001 2002 2003 2004 2005 2006 2007 2008

Brazil China India Russian Federation 2 per. Mov. Avg. (India)


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Year 2007 Year 1998

GDP composition over a decade (Source: World Development Indicators, 2009)

Research and development expenditures (% of GDP)
1.6

1.4

1.2

1
%

0.8

0.6

0.4

0.2

0
2000 2001 2002 2003 2004 2005 2006



Household final consumption expenditure (% of GDP)
70

60

50

40
%

30

20

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008



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Unemployment rate (% of total workforce)


Demographic characteristics
BRIC together comprises more than 40% of world population and a one third of land mass. With
these characteristics, BRICs is a major stakeholder in global market. The burgeoning middle class has
contributed to the rising focus of trans-national corporations leading new demand and supply
patterns in global value chains.

Demographic Change, 1950-2050, by Five-Year Age Group - continued

Source: Growth Commissions report, 2008

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Age dependency ratio (% of working -age population)
70

60

50

40
%

30

20

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008



Structural changes and macroeconomic environment
Liberalized Trade, financial Liberalization and structural adjustments are leading towards new
competitive market opportunities and efficiencies in BRIC economies. Rising FDI inflows (China being
the third highest in world, 2009 figures) boosting liquidity in the economy represents investors
favorable policy environment and flourishing domestic markets. Declining Aid as a % of national
income and growing self reliance is another feature of the rise in BRICs. Low fiscal deficits and
declining central government expenditure shows efficiency gains in the system. Current account
surpluses easing demand side constraints. There has been a positive change in business environment
in BRIC economies (reduction in Cost and duration of start of business procedures) and having
unique market characteristics and market potentials with (consumer base and penetration) there is a
brilliant emerging opportunity for BRIC nations.

FDI net inflows as % of GDP
6

5

4

3
%
G
D
o
P
f

2

1

0
2000 2001 2002 2003 2004 2005 2006 2007


Source: World development Indicators 2009, World Bank

Page | 7

Aid (% of GNI)
0.7
0.6
0.5
0.4
0.3
%
N
G
o
f
I

0.2
0.1
0
2000 2001 2002 2003 2004 2005 2006 2007



Aid per capita (current US$)
12
10
8
6
%
N
G
o

4
f
I

2
0
2000 2001 2002 2003 2004 2005 2006 2007

Axis Title



Current Account balance (% of GDP)
20

15

10

5
%
G
D
o
P
f

0
2000 2001 2002 2003 2004 2005 2006 2007 2008
-5

-10



Page | 8

Cost of business start up procedure (% of GNI per capita)
90
80
70
60
50
40
30
%
N
G
o
p

20
e
a
c
r
t
f
I
i

10
0
2003 2004 2005 2006 2007 2008



Unique characteristics
The rise of BRIC, to a certain extent, was (before the global meltdown times) an outcome of global
boom in demand and contributions by individual economies owing to their unique characteristics.
While Brazil and Russia’s rise was by and large contingent upon fuel and non fuel commodity
demand and pricing boom, India and China became reliant on their labour and human capital
respectively by manufacturing and services.
Brazil has an abundant natural resources and Amazon as a source of trading various commodities like
lumber, oil, palm, soya etc. Russia, on the other hand has surplus non renewable resources (which
has its own controversies with china1 recently) whose demand of natural resource and energy is
growing tremendously. China’s rise in the global arena is due to its focus on manufacturing and trade
utilizing its cost effective, healthy and educated labourforce for its production and trade. China’s
immediate neighbor, i.e. India’s progress is noticeably unique due to its IT and ITes revolution which
shows her focus on technology. India too has an advantage of burgeoning middle class.

BRICs amid international political economy
As per the Long term projection by Goldman Sachs (Goldman Sachs Global economic paper 99), in
2025 BRICs are going to be half the size of G-6 and in 2045 BRICs will ovetake G6. Apparently, in the
midst of global financial crisis, it seems these projections would need further discounting but sooner
or later there will be impact of this massive upsurge. This would lead to a new era which would be
reminiscent of rising participation of BRIC nations in global commons and its governance.

1
The whole idea of shanghai cooperation organization in order to wall againt Russian oil. For more see Raphael K., Dirk
M. “The impact of Asian drivers on developing world” World Development Vol. 36, No. 2, pp. 197–209, 2008
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The Rise of BRICs would embark upon a shift in global production networks which would lead major
changes in demand supply (for example the rise of East Asian tigers) much of which is already on
happening. As a ‘new pole’, the impact of BRIC can be unprecedented in several dimensions. The first
and foremost impact is going to be on environment, a global common. Much of this change would
rest upon what BRICs countries choose to do in near future (for example emission cuts, clean fuel
technology, etc.). There is already some amount of action apparent in Chinese case which is going a
play a big role owing to its industrial reliance. A shift in Global governance would the other major
impact of the rise in BRICs. China and India are already being considered as a voice of south
(kaplinsky, R., Messner., D., 2008). With three out of the four potentially largest economies in 2050
residing in Asia, there could be an important geopolitical shift towards the Asian region (China’s
growth is already having a significant impact on the opportunities for the rest of Asia). Sustained
strong growth in BRICs economies might have similar impacts on their major trading partners. The
rise of BRICs would be a driving force towards demand pricing range of commodities which would
open up new opportunities for transnational corporations.

Source: - Goldman Sachs report on BRIC, 2003

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Higher growth may lead to higher returns and increased demand for capital in these markets—and
for the means to finance it. The pattern of capital flows might move further in their favour and major
currency realignments would take place (Goldman Sachs, 2003). Rising exchange rates could
contribute a significant amount to the rise in forex reserves in the BRICs which would further reduce
demand side constraints in balance of payments. About 1/3 of the increase in forex reserves would
come from rising currencies, with the other 2/3 from faster growth.

The increasing importance of China across several dimensions in wake of financial crisis makes it
an interesting case while exploring its contribution in rebalancing global growth.

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China – the rising dragon, (most influential amongst BRICs)

Over a period of last three decades, China’s impressive growth is reflected in its global footprints
across several key dimensions and has been a topic of great concern especially in the era of global
financial crisis. China’s case is significant not only due to its current account surpluses,
countercyclical fiscal policies or the issue of over accumulation and under consumption in the
distressed times, but to a larger extent the long term implications of the past impressive growth, its
sustainability and the gradual rise as an Asian giant 2 concerning future of the global political
economy. As per John Wong (2003, p. 41), in purchasing parity (PPP) terms in the year 1999, China
became the world’s second largest economy after the USA. According to the World Bank, it took
Britain about 58 years to double its per capital income (from 1778-1838), 34 year for Japan
(1885-1919) and 11 years for South Korea (1966-1977) but only 9 years for China (1978-1987) and
another 9 years to double this again (1987-1996) (World Bank, 1997).

China’s GDP growth from 1978 to 2007 (Source: Wu, Q., Zhang, Y., 2009)

(Source: Wu, Q., Zhang, Y., 2009)

The post Mao effects benefited China with healthy and educated labourforce which fueled the
massive industrialization drive. Paul Krugman (1994), emphasizing the importance of total factor
productivity in growth argues about East Asian growth models. In case of China, a substantial amount
of growth in GDP attributes to Total Factor Productivity, which was generated from economic
reforms and open door policy (World Bank, 1997). China unlike India, managed to curb to
considerable extent poverty in the country to less than 20% of population living under $1.25 a day (at
2
The rise of China has so far has been regional which has been emphasized by Jeffery Henderson’s China and Global
development: towards a global- Asian Era?, 2008
Page | 12

PPP). China also focused on human capital development which reflects in its high-tech product
exports accounting for 28.6% of the total exports in 2007 compared with 4.7% in 1992 (Qingjun W.,
Yuzhong Z., 2008). China is also growing its resource resource pool of fresh engineering graduates
estimated to be 600,000 annually (McGregor 2006). There are also speculations of around 1200
principal researchers/ scientists and considerable focus on nanotechnology in china.

Chinese competitive advantages in production are big country, cheap price of factors of production
i.e. land and energy, availability of cheap labour, high investment fueled by high household and
corporate savings (Chamon and Prasad, 2008), high FDI promotes high capital accumulation. The
whole interplay of factors of production is being backed by state capitalism and macroeconomic
policy of fixed exchange rate and cheap capital by state owned banks.

Chinese exports of goods and services as a % of GDP

Source: Wu, Q., Zhang, Y., 2009
Gross savings (Source: World development Indicators, World Bank, 2009)

China’s net exports (exports minus imports)
contributed to one-third of its GDP growth in 2007. China’s exports of goods and services as a share
of GDP rose from 9.1% in 1985 to
37.8% in 2008 (Wayne M., 2009). In
2007 China’s foreign exchange reserves
reached up to $1,530,000,000,000 and
terms of trade surplus of
$262,200,000,000 in 2007. China has
largest trade surpluses amongst all
nations. Foreign direct investment
(FDI) flows to China have been a major Manufacturing wages during catch-up, 1950-2005 (Source: Hung,
2004)
factor behind its productivity gains and
rapid economic growth. FDI flows to China in 2007 totaled $75 billion, making it the largest FDI
recipient among developing countries and the third largest overall, after the EU and the United

Page | 13

States. The current global economic slowdown (especially among its major export markets—the
United States, the EU, and Japan) is having a significant negative impact on China’s export sector and
industries that depend on FDI flows.

The figure of the changes in China’s trade surplus (hundred million dollars)- Source – Chinese
statistical handbook, 2008

Foreign Direct Investment, net (BOP, Current US$) - Source: World development Indicators, 2009

Source: WTO statistics, 2009

Page | 14



Global financial crisis

Globally, the asset price bubble burst and the fall of major banks in US affected on several fronts.
Most of the commodity exporting developing economies (fuel and non fuel) saw a declining terms of
trade due to sharp dip in commodity prices. This decline was a cumulative causation i.e. crisis, not
only impacted relative prices of commodities compared to manufacturing products but also reduced
income elasticity of demand. Although price elasticity of demand should help in medium term but
this would be contingent to the consumer sentiment and policy interventions in short & medium
term and macroeconomic policies over a long term horizon. The liquidity crunch in the US resulted in
balance of payment constraints for all the major exporters owing to a severe decline in demand.
Another impact of the crisis was the reaction of market in terms of downsizing and significant lay offs
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which ignited second order impacts of crisis across the globe. Due to emigration and job cuts,
remittances to developing nations suffered terribly. Declining foreign direct investments added to
the demand constraints in favored nations. All this may lead to a serious trouble for the Aid
dependent nations if proper measures are not taken, which is so far not the case.

Source: World BankSource: Development policy and analysis division WESP,
Report, 2009
United Nations 2009

Primary, secondary and tertiary level of impacts of
financial crisis (source: Harvey, D.; Thirwall, 2003, et.al.)

Commodity glut
Trade wars in order to retain
competitive advantage
Decline in global welfare
Decline in Aid
Possible social unrest

Over accumulation -
under consumption
Surge in unemployment
and emigration
Declining remittance
Deteriorating FDI
Liquidity crunch
Downsizing & lay offs
Decrease in income elasticity
of demand
Commodity prices declines
Terms of trade deterioration,
Balance of payment decline,

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Source: Development Policy and Analysis Division, WESP, United Nations 2009

Source: Development Policy and Analysis Division, WESP, United Nations 2009

Page | 17


Volume of world merchandise trade (exports & imports) by selected region, 2000-2008 (Annual percentage change)


Page | 18

Financial Crisis and China over global map (source: Harvey, D., 2003, Krugman & Obstfeld, 2009, et.al.)

Impact of financial crisis on China and major challenges ahead

Financial crisis, which originated in the latter half of 2007, impacted China severely. The financial
system was relatively insulated from direct impacts. China’s merchandise exports collapsed from 36%
of GDP in 2007 to around 24% in 2009, current-account surplus fell from 11% to an estimated 6% of
GDP (WTO; IMF, 2009). Also, its net exports in 2007 which accounted for almost three percentage
points of GDP growth, in 2009 they contributed to the decline in growth to the tune of three
percentage points. As per estimates of Ministry of Human Resources and Social Security there are
losses of 560,000 urban jobs last quarter of 2008. Urban unemployment rate reached 4.2% (SCMP
2009). January, reports of migrant job losses reached 20 million with 6–7 million new workers
expected to enter the migrant labour force during the year (Central Work Leading Group 2009).
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Growth rate dipped to 6% in first quarter of 2009 as oppose to what government claims to guarantee
8% growth necessary to secure an acceptable level of employment and avoid social disruption (Sarah
C., Jing gu 2009).

There are challenge on the way of balancing the immediate need to restore growth and create jobs,
against the more fundamental and longer term goals of reorienting the economy, reducing export
dependence, promoting domestic demand and moving towards higher value-added production. A
major challenge in front of Chinese central government is to de-regulate and reform financial sector.
This would not only imply banking sector reforms but also implies to the limited availability of
financial instruments. There is still a high incidence of non-performing loan by state owned
enterprises mainly on cheap credits which bounces back to the domestic savers with low interest
rates in savings and overall loss to the taxpayers. Lack of flexibility in exchange rate affects
government, institutions and private in terms of loss over investment.

Clearly, having a policy of command and control macroeconomic management and sterilizing
operations on inflation shall be difficult for China in long run. The more globalised china the more
exposed to external shock (Prasad, 2008). It will require politically contentious policies such as price
adjustments for energy and other natural resources to reflect the real cost of production and reduce
the negative externalities of China’s industrial development (Xiao 2009).

Government need to manage a tradeoff between short term and long term objectives i.e. regional
imbalances which happened due to export focus of the coastal regions while recently more rapid
growth has been detected in the central provinces (Caijing 2009). In dealing with this situation
government would need to address social security, although at relaxed credit, but efficient financial
investments. Internal regions would need support in dealing with returned migrants, loss of
remittances, income and need for social protection. In absence of proper risk assessment and
availability of relaxed credit, there can be potential inefficient and polluting project in the offing. This
would require a great amount of synchronicity in between central expectation and local level
facilitation (sarah. C, Jing Gu 2009)

China’s global foot prints across various dimensions amid financial crisis - Trade, foreign
investments, Aid & human rights and Global governance

Exports

With the WTO accession in 2001, once quotas to Chinese exports were removed, the exports from
Sub Saharan African exporters fell by 26% to the United States (Raphael K., Dirk M., 2008, p. 207).

Page | 20

The rise of Chinese exports has so far proven to be difficult for least developed countries like
Lesotho3 which subsequent to the end of the Multi- Fibre Agreement, terribly suffered while South
Africa’s supply of garments to its domestic market has declined from 80% to about 25% (Kaplinsky
and Morris 2008). With regard to textiles, a recent World Bank study’s (Winters and Yusuf 2007, pp.
89–92) projections suggest that garment industries will be hit more heavily with declines of around
19% in Vietnam and North Africa (principally Egypt). The concerns of threat from Chinese
competition to Latin American countries especially Mexico in high technology products such as
electronics and car components are valid as they have been found suffering badly despite of having
few miles away from US.



3
For more on this see – Raphael K., Dirk M., “The impact of Asian drivers on developing world”, World Development Vol.
36, No. 2, pp. 197–209, 2008
Page | 21



China’s future export growth is likely to come from higher-value products, such as computer chips
and cars (IMF Working paper, 2009, Henderson J., 2008) which would be spurred by the competitive
advantage of country within country with different wage levels. Also, with the advantage of capital
controls that will prevent its exchange rate rising as abruptly as Japan’s did in the 1980s, moving up
the value chain would reap durable gains in its market share.

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Imports of primary commodities, natural resources and minerals

Reduction in agricultural land migration has resulted stagnation in agriculture productivity hence
there is a growing reliance on imports of food and other agricultural commodities. Grains from the
US, soya and oilseeds from Brazil and Argentina are chiefly imported. China’s share of Brazil’s total
oilseed exports rose from 20% in 2001 to 30% in 2004 (Gottschalk and Prates 2005).

Similarly as an industrial input, China source huge mineral and metals form African and latin
American countries. China’s share of Chile and Peru’s exports of copper, for instance, had increased,
respectively, from 9% and 8% of the total in 2001 to 17% and 19% by 2004 (Gottschalk and Prates
2005). In Africa for instance, there are increasing proportions of Zambia’s export of copper, Congo’s
exports of cobalt and copper, Zimbabwe’s exports of cobalt, and Ghana’s exports of aluminium
(bauxite) are hugely diverted to China to feed its massive industrial revolution (Henderson J. 2008).

China's hunger for natural resources has expanded across the globe. From Canada to Indonesia to
Kazakhstan, Chinese firms are gobbling up oil, gas, coal and metals, or paying for the right to explore
for them, or buying up firms that produce them.

UN Comrade

UN Comrade
The Economist, Jan 7th 2010

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Amid financial crisis, although China’s has become the world’s largest exporter and its share of world
exports jumped to almost 10%, up from 3% in 1999, but, trade statistics for 2007-094 would reveal
that China’s imports have been stronger than its exports, rebounding by 27% in 2009 (Upto
November), when its exports were still falling. America’s exports to China (its third-largest export
market) rose by 13% in 2009 (upto October).

As per recent news, China has been reported to be World’s biggest car market in 2009. Much of this
has happened due to demand inducing policies of central government.

China overtakes US as world's biggest car market….13.5m vehicles sold in China in 2009, 10.4m in US…
China sees 45% growth in car industry year-on-year…China's government incentivized growth in sales
by lowering sales taxes on smaller, fuel-efficient cars and spent $730m (£450m) on subsidies for
buyers of larger cars, pickup trucks and minivans. Also stimulus spending on building highways and
other public works also helped to boost sales of trucks used in construction. – Agencies,
guardian.co.uk, Friday 8 January 2010 14.52 GMT

Foreign investments, Aid & human rights

China’s foreign investments in developing countries are changing several dimensions on investment
climate and deals and negotiations. Countries like D.R. Congo with a new deal in the offing with a
Chinese mining firm for the extraction of copper5, are looking forward for such negotiations with
western investors which is becoming a cause of concern for them. Chinese activities in Africa have a
solid potential to contribute to African development, but a key challenge for SSA is in governance as
it poses a unique management challenge (Martyn D. Johhana J., 2009). Mostly these investments are
bundled with a package of Chinese workers who come along to set up the company and later on
settle in these countries and thus leave local Africans unemployed (Henderson J., 2008).

China with its multiplicity of funding sources and the diverse interests associated with them offers
cheap foreign aid for budgetary support to African nations often without any conditions has been a
cause of concern to the west. For instance, given its involvement in Angola’s oil industry, it is not a
surprise that the Angolan regime has been a recipient of China’s largesse (Henderson J., 2008). As
per an article in The Guardian, dated Thursday 8 February 2007, Chinese aid could set back progress

4
See Appendix
5
Socomin, the Chinese-Congolese joint venture company, is committing 0.5% of all investment on training the workforce
and on technology transfer, while 3% will be spent on social provision for the local community. Furthermore, Socomin, is
specifically required to subcontract 12% of its work to Congolese companies and limit its Chinese workforce to 20% of the
total. For more see (Komesaroff, 2008).

Page | 24

toward democratic administrations in aid receiving countries. With the unconditionality in aid and
cheap loans to African governments, risks driving back into debt countries that have only just
benefited from debt relief.

The other side of coin can be seen as a win- win situation for both China and aid receiving nations.
China would become a preferred trade partner (and hence would be able to retain its share of
resources deemed necessary to sustain the pace of production and their exports) and aid receiving
nations would gain empowerment by the prioritizing investments by self assessment rather than
being directed. Clearly, in the wake of financial crisis, any financial support must be helpful to poor
nations. The issues aggravates here as because in this back door entry game, ‘West’ is holding the
door and any incentive leading to widening of door would be a cause of concern to the ‘West’.

Also, currently China accounts for almost half of America’s total deficit, up from less than one-third in
2008 with even bigger slice of America’s market. In the first ten months of 2009 America imported
15% less from China than in the same period of 2008, but its imports from the rest of the world fell
by 33%, lifting China’s market share to a record 19% (The Economist, Jan 7th 2010, Hong Kong).

Global governance

On the global governance front, with the rise of China along with other Asian giant India, there is
growing consensus on what these countries choose to do or not to do has very often profound
consequences for many other actors globally (Raphael K., Dirk M., 2008, p. 207). Concerns loom
largely with global governance issue underpinning the existing potential power shift with the rise of
China as a regional hegemon, however, a complete shift in global governance, may strengthen the
voice of the developing countries in international organizations.

So far, China’s strategies of
trade, investment and aid in
African context reflects its
domestic orientation and not
for the provision of global
public goods such as poverty
reduction. It comes out, in
the wake of financial crisis
that it will rather take some China’s accession to international treaties, 1949-2003 (Source: Chan, 2006 cited in;
time for china to build up Raphael K., Dirk M., 2008, p. 201)

governance capabilities in
Page | 25

many global governance arenas balancing national interests with regional and global challenges and
responsibilities. However, if china can steer through crisis, it would appear as a steadying factor in
trade, investment, and aid compared with west and may become development partner of choice.

Environment

Source: The Guardian, Dec 7’ 2009

In 2007, China was the largest carbon emitter with emissions of 6283.6 million of tones of CO2. The
Copenhagen summit ended recently, China announced cutting of carbon emissions to the tune of
45% by 2020 compared with 2005 levels. Although, due of its high economic growth rate, China's
emissions will continue to rise rapidly for at least a decade but this target commits China to slowing
the speed of emissions growth through the adoption of renewable energy, replacing old power
stations with more efficient plants, and possibly capturing and storing more carbon. It is also likely to
startle moves to introduce a carbon trading scheme and a carbon tax. By setting its first carbon
target, China moves its policies more closely into line with international efforts to reduce greenhouse
gases.

Conclusion

China has factor advantages which include land, labour, capital, human capital and technology
supported by its capital controls. Though China’s competitive advantage has been a difficult problem
to developing nations especially small developing nations but understanding economic history of
global growth, it would come out that success has always been a relative measure.

Understanding various dimensions of china’s presence, it becomes apparent that china is the new
rising superpower. China is increasingly becoming one of the biggest stakeholders in global affairs
(apart from military which has not been explored in this study) immediately after the ‘West’.

Page | 26

In the wake of financial crisis, China is playing important role in rebalancing global growth. All the
recent statistical evidences well support to the argument. The role played by Chinese imports, its
rising consumerism, investments in primary secondary and tertiary circuits of growths (fiscal stimulus
package), and environmental commitments, all suggests that China is doing much more than its part
in the financial distressed times. Also Chinese overseas investments both in securing resources for its
production led growth and in stabilizing the American economy must be appreciated as these
investment spur demand which is very much required in order to sail through the state of crisis.

There are arguments like adopting (On December 31st 2009, Paul Krugman wrote in the New York
Times) “a beggar-everyone but yourself policy” when the world’s major economies are in a liquidity
trap China is playing with the currency exchange rate. A closer examination would reveal that these
arguments are clearly one side of the coin. In past 2 years, China’s imports have been significantly
improved compared to the exports. Also, lower incomes encouraged consumers to trade down to
cheaper goods, and the elimination of global textile quotas in January 2009 allowed China to increase
its slice of that market.

But mentioning china’s role in global economy, China need to overcome the dual challenges of
balancing the immediate need to restore growth, create jobs one side and longer term goals of
reorienting the economy, reducing export dependence, promoting domestic demand and moving
towards higher value-added production on the other. China needs a long term strategy to achieve a
sustainable growth which in one way can be beneficial to global economy in the era of crisis.

Over a long term, there are issues across several dimensions which china needs to address in order
to maintain the momentum. There are institutional issues like incapability of banking and financial
sector (prone to external shocks in a globalised world) and non-performing loans (state guarantees),
policy issues like flexible exchange rate (incurring losses over investment), command control
macroeconomic management and sterilization operations on inflation (difficult in long run). There
are social and demographic issues like one child policy and rising dependency, social security etc.
coupled with an issue of democracy. There are also external issues of Chinese interventions which
are environmental, loss in welfare of poor-manufacturing dependent nations (due to its competitive
advantage) etc. which would be required to be addressed diligently in its march towards becoming
global superpower.

Page | 27

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Appendix (source: transforming rebound into recovery, A World Bank economic update on East Asia
and pacific, November 2009, World Bank)

Page | 32

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