China’s outstanding economic growth and the social problems it has causedAmid the trade war going on between China and the United States, one may ask how China, one of the poorest countries in the world a few decades ago, grew into an economy that could challenge the United States, the sole superpower existing in the contemporary world. The strategy that lies behind China’s current economic power is its decision to bandwagon on globalisation, first by establishing Special Economic Zones in 1979 and then by joining the World Trade Organisation in 2001.

The economic globalisation process in China has boosted the economic growth, turning it into the fastest growing economy in the world. This has created more choices of goods and services for Chinese consumers that has improved their standard of living contributing to its Human Development Index. Since 1990 China’s HDI value has risen from the low standard of 0.499 to the high of 0.738. Nevertheless, high level of economic activity generated by China’s integration into the global economy has resulted in developmental problems such as environmental damage and inequality. 

China’s is currently the world’s largest economy in terms of GDP adjusted by purchasing power parity (PPP) and its long-term economic growth has averaged 9.7% although it has experienced relatively lower growth rates in last few years. The influence of globalisation on the Chinese economic growth should be considered alongside with its impacts on economic development that could be measured in a number of ways including UN HDI index, distribution of income and environmental sustainability.
As reported by the World Bank, life expectancy in China has increased to 76 years from 68 years since 1980. At the same time, the nation experienced an approximate increase of almost 31% in literacy rates between 1982 and 2015. Additionally, GDP per capita (PPP) that constituted mere $1,526 in 1990 has risen to $14,400. All these factors have contributed to the aforementioned increase in China’s HDI score.  

Nevertheless, China’s increased output of manufacturing firms has led to higher carbon dioxide emissions that created environmental concerns. For example, from fossil burring and cement production, China released 8.5 GT of CO2 into the atmosphere in 2012 making it responsible for 25% of the global carbon emissions. As we have mentioned in the introductory paragraph, China’s main sources of Foreign Direct Investment are transnational corporations that operate across the country. Some of those transnational corporations have been accused of damaging the Chinese environment heavily. An obvious example is Foxconn, the world’s largest electronics contractor, which faced charges for dumping steel and heavy metals in Chinese rivers. This has resulted in severe consequences such as damaged biodiversity, acid rains, loss of forests and lakes, drought and respiratory diseases. It is estimated that about 300 million people drink polluted water in China and 4000 people die every day due to severe air pollution. 

Furthermore, rising inequality is one of the issues caused by China’s integration into the global economy which is evident in China’s Gini index that has risen dramatically over the years. Establishment of the Special Economic Zones has attracted industries to large cities in south and east provinces of China increasing per capita incomes in these areas. Since the large industries and transnational corporations are based in large urban cities, rural areas experience flat wages and fewer jobs. This has limited specific groups’ access to education, healthcare and jobs, widening inequality among the Chinese people. The main drivers of the Chinese economic growth are foreign direct investment (FDI) and Special Economic Zones that could be defined as designated areas in China with special economic regulations and free market approach. The government of China provides special economic zones with special economic policies and flexible governmental measures including microeconomic reforms such as tariff cuts. Tariff reductions increase the competition and, therefore, efficiency making Chinese exports more internationally competitive. In addition, China’s integration into the global economy has resulted in free trade agreements with other countries that include advanced G20 economies, such as Australia and South Korea. This has made Chinese products less expensive in the partner countries leading to a higher level of economic activity. Additionally, China’s free trade agreements facilitated Chinese workers’ receipt of working permits across the world. 

Rapid economic growth has exerted strong impacts on several aspects. For instance, Chinese people’s standard of living has improved as they have gained access to more products and working places. The firms also gain higher profits due to rising wages and consumer demand for goods and services. This enables the Chinese government to earn higher revenue particularly from company and income taxes.

Moreover, an economically strong and globalized China is the key driver of economic growth in the Asia-Pacific Region. Despite selling exports to the countries in the region, China also imports goods and services from those economies. For instance, Australia’s main direction of mineral commodities is China and at the same time Chinese people benefit from Australian tourism and international education services that contribute to the economic prosperity in Australia. Furthermore, the Chinese demand for Australian exports was the main reason Australia could avoid recessionary pressures during the Global Financial Crisis of 2008.However, as we have mentioned above, the Chinese economic activity has been slowing down since 2012. This also suppresses global economic growth, since the Chinese GDP accounts for 15% of the global one. However, this could be an indicator of China’s transition from a developing country into a more developed nation, since growth rates of 10-12% rarely occur in advanced economies.

The influence of globalisation on the Chinese economic growth should be considered alongside with its impacts on economic development that could be measured in a number of ways, including the UN HDI index, distribution of income and environmental sustainability.

Nevertheless, China’s increased output of manufacturing firms has led to higher carbon dioxide emissions that created environmental concerns. For example, from fossil burring and cement production, China released 8.5 GT of CO2 into the atmosphere in 2012, making it responsible for 25% of the global carbon emissions. As we have discussed above, China’s main sources of Foreign Direct Investment are transnational corporations that operate across the country. Some of those transnational corporations have been accused of damaging the Chinese environment heavily. An obvious example is Foxconn, the world’s largest electronics contractor, which faced charges for dumping steel and heavy metals in Chinese rivers. This has resulted in severe consequences such as damaged biodiversity, acid rains, loss of forests and lakes, drought and respiratory diseases. It is estimated that about 300 million people drink polluted water in China and 4000 people die every day due to severe air pollution.  

Furthermore, rising inequality is one of the issues caused by China’s significance for the global economy. Establishment of the Special Economic Zones has attracted industries to large cities in the southern and eastern provinces of China, increasing per capita incomes in these areas.  Since the large industries and transnational corporations are based in large urban cities, rural areas experience flat wages and fewer jobs. This has limited specific groups’ access to education, healthcare and jobs, widening inequality among the Chinese people.  

Although these are major problems, the Chinese government has proposed appropriate policies to address them.  For instance, the State Council introduced an inequality reform called ‘Income Distribution Plan’ in February 2015. Under this reform, China rose minimum wages to 40% of the average wage in 2015 and was supposed to double personal income by 2020. Considering thatthe Chinese household consumption accounted for 37% of the GDP in 2015, this reform will not merely narrow inequality but could also boost economic activity. 

It should be noted that reduction of inequality in the country has been one of the top priorities for the Communist Party of China. For instance, China has pulled 800 million people out of absolute poverty in the past several years, which is more than any other nation in the world. The Chinese Government also aims to address its environmental issues caused by the economic globalisation process. This goal will be achieved by cutting carbon dioxide emissions by up to 65% from 2005 level by the year 2030, as the state pledged in the Paris UN Climate Conference of 2015. China is also planning to contribute $3.1 bn.  to the South-South Climate Fund to help developing economies address climate change.


About the author:

Ali Jabbarli is a student at Vrije Universiteit Brussels, currently majoring in International and European Law. He has previously studied Bachelor of Commerce at Macquarie University in Sydney, Australia. He has completed his high school studies in Australia as one of the most outstanding students in his state. His main interest areas include the Australian economy and the international relations in Europe after the First World War.