The global economy, over the years, has experienced considerable dynamics and modifications, owing to changes in both exogenous as well as endogenous factors. In the recent period, phenomena like Globalization, Liberalizations in different economies and technological innovations have helped in making the global economic environment more inclusive and integrated, contributing to greater mobility of goods and services as well as resources for production. This has, in its turn, has facilitated trade and commerce across the different countries, thereby making the economies across the world dependent on each other’s productive and economic activities.
In this context, several economies have gained immense economic impetus and showed impressive growth trends in all the aspects of economic and industrial sectors. These economies with their robust growth trends and increasing domain of operations have the power to influence other economies in the global scenario, as much of the economic and industrial activities of the latter are subjected to the economic decisions and conditions prevailing in the former countries. One of such countries, which has grown immensely in terms of economic and industrial aspects and has emerged as one of the primary globally influencing economies in the contemporary period is the economy of China (Gopinath, Helpman and Rogoff 2014).
Keeping this into consideration, the concerned assignment tries to discuss the current dynamics existing in China and the effect of the dynamics in the economy of the country on the overall global economic scenario. Taking the same into account the assignment also emphasizes on the effects of the economic conditions prevailing in China on another dominant global economies, that is the economy of Australia, which has developed significant commercial, economic and political relations with China over the years.
The economy of China, being socialist market economy in nature, has emerged as the second largest economy in the contemporary global scenario, in terms of the Nominal GDP. The country has also emerged as the largest global economy in terms of the purchasing power adjusted GDP. With an annual GDP of 23.1 trillion USD (2017; PPP adjusted), the country remained as the fastest growing economies in the world until 2015, with the average GDP growth rate being 10% for last three decades.
Much of this economic growth of the country can be attributed to the immense industrial growth of the country and the extraordinary technological progress, which has helped significantly in taking the country on the path of economic progress and long-term sustainability. The industrial sector of the country contributes nearly 47% to the Gross Domestic Product of the country in the recent period. The primary industries ruling the industrial sectors of the country include construction, manufacturing, power and mining sectors. Almost 27% of the total workforce of the country is absorbed in the industrial and the manufacturing sector of the country. China being a socialistic economy, the government of the country enjoys more control on the economy as compared to other market economies.
Over the years, the Chinese economy has emerged as one of the globally influencing economies, with the consistently increasing international tie-ups of the country with other economies across the world, both in terms of business, trade and in political and socio-economic terms. This has been immensely facilitated by the global economic phenomenon like Globalization and the liberalization of the economy of the country, which opened the trade sector of the country, thereby facilitating easy and convenient bi-lateral commercial and industrial transactions between the country itself and its trading partners. This has benefited the economy of the country significantly, as it went on exploring newer markets, opportunities and venturing in new operational domains.
As can be seen from the above discussion, the impressively growing industrial economy of China, with its increasing international tie-ups, has played considerably significant role in influencing the global economy increasingly over the years. One of the primary decisions of the country which contributed immensely in shaping up the economy of the country as well as in the global economic development scenario, in the contemporary periods, is that of joining the World Trade Organization, in 2001 (Burda and Wyplosz 2013). Apart from that the liberalization and reform policies taken by the government of the otherwise protectionist country, increased its domain of operations as well as economic and industrial influence on the global economy. The implementation of the reform policies in 1979 not only benefited the country in terms of increased economic growth but also helped it to gain the chance of becoming one of the most significant global economic influencers.
China, in the recent periods contribute nearly 24% of the total economic growth of the world and enjoys robust and productive trading relations with countries like the United States of America, Japan , India and Australia. In the current period, China has emerged as the second largest trading partner of the USA, which in turn is the most influential economy in the global framework. Apart from that, the country also lists as the largest importing nation of Japan and as the potentially largest exporting nation as per the European Union. The country, over the years, has signed various free trade agreements, one of the most significant ones of these agreements being the ASEAN-China FTA, which has helped the country considerably to increase their exports to the ASEAN countries (Breslin 2016). All these factors, together, have contributed in making the country one of the primary influencing economies in the recent global framework, as many countries depend on the production and export bundles of China for their necessities and on the importing habits of the country for their economic and productive prosperity.
Figure 1: Contribution of China in the global economic growth over the years
(Source: Economist.com, 2018)
As is evident from the above figure, the contribution of China, in the global economy, has increased considerably over the last few years, with the share gradually exceeding the contribution of other economies, including the USA as well as the Euro zone with each passing year. Even, in 2008, when the Financial Crisis affected all the major economies of the world, thereby decreasing their contribution in the global economic growth, China still contributed considerably to the global economy. This in turn indicates that with time the influence of China, on the global economy as a whole is considerably increasing. Of the different sectors in the world economy, where the influence of Chinese economy is high, the primary ones include the energy and the oil sector, which can be seen from the following figure:
Figure 2: China’s share of world economy in terms of oil, energy and GDP
(Source: Deloitte.com, 2018)
The consistently rising share of the country in the global demand for oil can be explained by the increasing gap between the total production of oil in the country and the consumption of same in the country, which has been continuously increasing owing to the consistently increasing number of vehicles as well as industrial growth of the country:
Figure 3: Production and Consumption of oil in China (Over the years)
(Source: OilPrice.com, 2018)
The consumption of oil in the country has been increasing at a rate, which is much higher than the increase in the production of the same. This in turn has been increasing the gap between the same. The gap is met by the country by importing the rest from other countries, which includes Saudi Arabia, Russia, Iran, Oman and others. This in turn makes it one of the primary oil importing economies in the global scenario, which influences many other oil producing economies in turn (Shambaugh 2013).
Figure 4: Countries from which China import oil
(Source: OilPrice.com, 2018)
The scenario is similar in the energy sector too, with the country importing a major share from the other countries, thereby exerting its influence on the production and economic activities of these countries. On the other hand, the country is also becoming one of the primary exporting countries in the global scenario over the years, with the share of global exports increasing continually over the years. The following figure shows the trends of the leading countries in the global economy in terms of the share of global exports over the years (Wagner 2012):
Figure 5: Export share of different countries in the world
(Source: Wto.org, 2018)
As can be seen from the figure above, though China started comparatively at a much lower level, than the other globally influential economies like the USA, Japan and Germany, in 1980s, the country not only caught up with the pace of these countries in terms of the amount of exports, it actually surpassed the rest by 2009. As can be seen from the empirical evidences from 2010 to 2017, the share of exports of China in the global framework is considerably higher than the same for the other three countries, with the gap increasing with time, with the share of exports of China increasing while the same for the others decreasing (McNally 2012).
From the above discussions, it can be asserted that the economy of China and the turmoil in the same are expected to have considerable implications on the global economy as a whole, due to the robust trade and commercial relations of the country with almost all the major economies in the world. Another reason behind the same can be considered the impressive growth and sustainability trends of the country with time. Due to its growing influence on the world economy, the currency of the country is expected to become a part of the Special Drawing Right of the International Monetary Fund. This makes it the only emerging global market currency, which would be held by big countries in their Central Bank reserves along with the currencies like euro and dollar. China’s robust economic policies helped the major economies of the USA and Europe by keeping their export sector floating during the Financial Crisis of 2008-2009. The country did that by spending trillions for increasing the aggregate demand in the economy, thereby catering to the production sectors of the affected countries (Liu, Uchida and Yang 2012).
However, in the recent periods the economy of China has been slowing down visibly, much o which can be attributed to the country’s new economic strategy of refraining itself from stimulating consumption. This Capitalistic approach though may have mixed effects on the economy of the country itself, is expected to affect the global economies in the following ways:
Falling prices of commodities including oil- With the slowing down of the Chinese economy, the consumption in the country is expected to reduce substantially. China being the one of the largest importers of oil, lead, iron ore, copper, investment commodities and many services, this slowdown of the consumption and aggregate demand is expected to create an excess supply of these commodities and services in the global markets. This can be thereby leading to a decrease in the prices of the same, threatening the international economy with an oncoming deflation (Forbes.com, 2018).
Trade reduction- China being one of the largest exporters in the global scenario, the slowing down in the economy can also lead to considerable reduction in the production and export of goods and services by the country to other corners of the world, thereby affecting the welfare of the global economies considerably.
Domino effect- China being one of the most influential economies in the global framework, the recent slowdown of the economy is not only expected to affect its direct partner nations but is also expected to hamper the economic growth of those nations which are not directly linked to the same. This can thereby create a domino effect, with the ripples affecting the global economy as a whole (Eichengreen, Park and Shin 2012).
Taking these effects of the economy of China on the global economic trends as a whole, the following section tries to analyze the impacts of the dynamics of the Chinese economy on that of the economy of one of its prolonged trading partners and politically, socially and economically linked countries, Australia.
The economy of Australia, over the years, has emerged as one of the leading economies in the global framework, with robust economic and industrial growth trends. Much of the growth of the country can be attributed to the highly active international trade and industrial relations of the country, with almost all the leading economies in the world, which predominantly includes China. China is not only one of the strongest trading partners of Australia but also accounts for the highest share of exports of the country, thereby becoming the biggest export market of the country:
Figure 6: Export share of Australia in the recent periods (In billions)
(Source: Dfat.gov.au, 2018)
The economy of China is the largest importer of the agricultural and energy commodities of Australia, which also exports considerable share of academic services to the country. The already robust trade relationship of the countries has been even more facilitated by the Free Trade Agreement, which became effective between the countries from December 2015 (Eichengreen, Park and Shin 2012). This has made more than 85% of the commodities and services exported by the country to China duty free, thereby facilitating the economy of Australia hugely. The agreement has also facilitated the Australian tourism massively as the number of Chinese tourists (both businesspersons and pleasure travelers) in the country has increased noticeably.
Apart from being the largest export market of the country, China is also one of the largest contributors in the Foreign Direct Investment in the country, which can be seen from the following figure:
Figure 7: Share of FDIs in Australia by different countries (In USD Million)
(Source: Data.oecd.org, 2018)
China ranks second, just after the USA, in terms of the FDIs in the economy of Australia in the recent periods, with a major share of the FDIs flowing in the booming residential and real estate markets of the country, especially in Sydney and New South Wales. Healthcare, energy and education are the other sectors of the country, which also attracts a huge amount of investment from China (Kolstad and Wiig 2012).
Thus, from the above empirical evidences it can be asserted that the economy of China holds considerable influence on the dynamics of the economy of Australia and much of the productive, investment, employment and economic prospects of the latter depend on how well the economy of the former is performing. For the Australian economy to prosper, the aggregate demand in China needs to be growing. Taking this into consideration, the recent slowdown of the economy of Chins can have immense negative implications on the economy of Australia (Paul and Aserkar 2013). With the slowdown of the Chinese economy and the withering out of the construction investment boom of the same, investment is expected to fall significantly in the Australian economy, which is expected to have direct impacts on the GDP of the country:
Figure 8: Impact of fall in Chinese investment on the GDP of Australia
(Source: Abc.net.au, 2018)
Apart from the fall in the GDP due to the reduction in the inflow of the FDI, the slowdown can hamper the exports of Australia massively due to the overall reduction in the demand for the goods and service, which they provide, to China, thereby having stagnating influence on the economic prosperity and sustainability of Australia.
Conclusion
From the above discussion, it can be concluded that the economy of China, being one of the largest growing and most productive economies of the world, not only influences the global economy with its economic activities but also with the policy framework. This in turn implies that the recent dynamics in the economic indicators of the country is expected to contribute considerably in shaping up the economy of world. Australia, being one of the primary trading partners of China, is expected to be considerably effected by the dynamics in the economic framework as much of the economic prosperity of the former depends on the demand patterns and economic policies taken by China.
References
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