Chitkara University

Is China emerging as an economic superpower?

Corporate Communication MBA II

Sonam Kaudal and Sarah Matzenbacher 12.10.2011

IS CHINA EMERGING AS A SUPERPOWER?

China is arising as a strong economic growth, that is noticeable and clear, but will China also emerging as the next global superpower?

To get an answer for this question we have to analyse the country China itself, it s economic background as well as the question what makes a country to a superpower? Or what makes a country to move from being strong, regional power and then finally superpower? And finally we have to discuss, what are the different criterias on which we weight a country's superpower?

Let start with China itself. China as we know today is the 4th largest country with the largest population of 1,336,718,015 people and a GDP of $10,09 trillion (which represents the 3 rd rank worldwide). Besides importing of electrical, machinery, oil, mineral fuels and plastic from countries like Japan, South Korea, USA and Germany with an amount of $1.327 trillion, they are the second world exporting country. In 2010 their exports have had a value of $1.581 trillion mainly to data processing equipment, textiles, iron and steel. Export partners of China are countries like USA, Japan, South Korea and Germany and are mainly the same like the partners their trading their imports, what shows the strong connection to these countries. The age structure of China (0-14 years: 17.6%, 15-64 years: 73.6%, 65 years and over: 8.9%) and the change of consumer behavior to more expensive and luxury goods supports a good consumption basis and therefore a further economic growth in the future. Due to their large population China is equipped with the largest labor force of 815,3 million people in the world. Despite this high number of people China has just a small official unemployment rate of 4.3%, due to its communist form of government. Nevertheless you have to take into account that this is an official figure which does not include rural areas or immigrants. Following estimations of different other organizations, the real unemployment rate of China must be at least about 9%. The same evaluation issue takes part concerning their population below The Poverty Line which is officially about 2.8% and seems really low. But in this figure is also not included 21.5 million rural people, who live below the official "absolute poverty" line (approximately $90 per year); an additional 35.5 million rural population live above that level but below the official "low income" line. To its communist form of government China is also often in criticism by other countries regarding to their policies of human rights, especially in matters of

freedom of speech and religion. Another limitation to get the next super power shows in the fact that English is not spoken everywhere and that just the upper class is known for a good, fluent and business applicable English.

Concerning the economic background of China, there have been eight steps which have led to the system which we know today as the Chinese economy. In the following we will have a short look at each steps The Mao Era

The Mao Era was marked by a soviet-style planned economy which was instituted, despite his promises, in 1949-52. It was a decade of peaceful development and collectivization followed. Nevertheless in 1959 Mao launched the disastrous Great Leap forward, an attempt to collectivize all aspects of life, a disaster that was exacerbated by famine. Following this, a reformist faction led by Deng Xiaoping and Liu Shaoqi forced Mao out of office and experimented with market reforms. Cultural Revolution and collapse of the economy The Cultural Revolution party program is almost to bring about one of the most catastrophic periods ever in China. Youth groups aligned with Mao (known also as Red Guards) deposed, brutalised and frequently executed city and provincial government officials, and then took control themselves. This began in Shanghai and spread across the country really quickly. By 1966, most of the country was in the hands of revolutionary committees which were in battled with each other for power. This disruption, as well as the purge of millions of intellectuals, workers, and officials as counter-revolutionaries, had a severe impact on the economy. The economic output fell some 30% over three years, and stagnated for the rest of the period. Deng Xiaoping's rise An old party stalwart, Deng had been of the reformist faction in the early 1960s and purged in the Cultural Revolution. After Mao's death, a coup overthrew the Gang of Four and instilled old party officials such as Deng back in power.

The post-Mao Era (1976 onwards)

While, in 1976, at the end of the Cultural Revolution, China's planned economy was in ruins and its people barely surviving, the country was to witness, in the next two years, one of the most rapid periods of change in her 5,000-year history. Deng Xiaoping initiated e.g. free-market reforms that transformed China's economy really hardly. Only 30 years later, China moved from being an economically desolate country into an industrial powerhouse.

De-collectivization of agriculture

One of Deng's first actions was to break up the People's communes that Mao instated and grant a system of "Bao Chang Dao Hu", in which each plot of land was given to each household to farm. This system was successful enough to allow Deng in 1983 to lift limits on consumption of many agricultural goods that were instated during the Mao Era due to scarcity.

Liberalization and privatization of business Private businesses, which were banned in the Mao Era for being "Capitalist exploiters, were reinstated in the Deng Era. In the 1990s, many state enterprises were privatized and private individuals were allowed to create companies. In 1990, the Shanghai Stock Exchange was reopened after Mao first closed it 41 years earlier.

Foreign investment and industrialization

In addition to internal liberalization, Deng also established a series of "special economic zones" in which foreigners could invest in China taking advantage of lower labor costs. This investment helped the Chinese economy to boom further. In addition, the Chinese government established a series of joint ventures with foreign capital to establish companies in industries hitherto unknown in China. Deng's liberalization of the Chinese economy, along with foreign investment, helped to power China's industrialization.

Developments post-Deng

In 1997, Deng Xiaoping died. However, his reformist policies were continued by his successor, Jiang Zemin. The result was a vibrant, growing economy. Under Hu and Wen, who became leaders of China in 2003, the Chinese government continued to give up grounds to private enterprise, yet increased its control in other areas.

World's second largest economy

In July 2010, Yi Gang, Deputy Governor of the Bank of China, claimed China's economy had overtaken Japan as the world's second biggest economy by nominal GDP. Moreover China is now the world's biggest producer of concrete, steel, ships, textiles as well as the world's biggest auto market.

To sum up:
To sum up, we think that China is emerging in the future as the next global superpower, even if there are obstacles concerning the form of government, the trading of human rights and the language. China is such a big country with a plenty of history, potential and a large number of people which will also handle this obstacles to their advantage in the future.