Economics

CHINA AND INTERNATIONAL TRADE

DAMLA YAPILI MAY 2016

Essay on “What type of industrial policies China has implemented after 1978 to help its domestic companies to catch up with international competitors?”

East Asia and especially China implemented such kind of policies after 1978. Until this time, there was a decline in Western Europe because of the 2nd World War, and the US was the one who have been well from 1820. Nowadays, China is competing with the US. How could China reach this economic growth?

Firstly, to understand the economically growth of a country, we should observe the historical context and the cultural essentialism of China. From 1820 to 1950, Chinese economy was collapsed. China passed a Great Leap Forward led by Mao (1958-1971) and a Cultural Revolution (1966-1968) which were both terrible drama for the country because many people died due to the famine. At that time, they were only producing low-value products. They were suffering because of a strict communist ideology of the state which was very idealistic.

Then, with the leadership of Deng Xiaoping, China started to change a lot and grow at a rate unseen before. The production level and foreign trade increased step by step. China has slightly encouraged foreign direct investment and pursued liberal policies since 1978. The economists call this process as an incubation period because it includes a learning process from others nevertheless, technological catch-up. In this sense, the state’s role is very important because when Western Europe and others follow non-intervention of the state policy, China was the opposite. The state protected the domestic market with “find-tunning policy” to develop the technology. The tariffs were very high for foreign products since China was not ready to face a competition process. At the same time, they transferred the technology conventionally and applied to inward FDI (foreign direct investment) because there was a need to have developed machinery, management techniques and knowledge to use them.

As I was saying that before 1978, the products were not high-valued and sophisticated which were “assembled in China” but  the title transformed into “made in China” then, “made by China”. The proceeding period “incubation” can be placed as assemble and made in. With the technological growth, the products started to be “made by”. This very crucial because it shows us how the industrial capacity of China is growing. The state is giving subsidies to the companies like Lenovo, Huawei, Haier etc because they believe that national champions are important to be developed economically. Therefore, every year the bargaining process is a repeated action between companies and state. It makes the companies more efficient to reach the subsidies and creates “value” in the products. The other policy that China applies SEZ (special economic zones). The state forms a competition inside the country such as Beijing and Shanghai to achieve an economic growth. Chinese companies build up competitive advantage is not stable in terms of solar panels, steel, household applicants and railroad… For example, Galanz (oven company) is not promoting itself but selling the products to Siemens and other big companies. This shows us they are already good at manufacturing.

The Chinese participation to World Trade Organisation is also an effective step forward to be a welfare economy because of the liberal ideas between member states and cooperation with each other in taking advantage of outward FDI which provides an easy investment abroad since they need secure sources of energy in an order like coal, oil, nuclear, solar and hydro-electric from Iraq, Saudi Arabia, Kazakhstan, Sudan, Angola, Venezuela etc. China became a net importer of oil in 1995 compare with the US.

Moreover, China has created currency reserves after 1992 in order to attract the companies because they wanted to make their export greater tan their import. In this sense, they could achieve the investment abroad very successfully because they wanted to protect the Juan which is the official currency in China because to save the foreign currency inside the country can create an inflation.

In the last decades, the New Silk Road projection is a significant item for China which is a kind of new Marshall Plan includes partnership because the aim of the project is to expand the transportation network between the countries, reduce transportation costs and to eliminate obstacles, improve coordination of their customs. Therefore, it implies many opportunities to have a good access to each market within the other states. Although it is so expensive, China is really willing to make railroads and develop the infrastructure to have an interconnectivity with the others.

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