China's economy and how they are succesful

Introduction

China has an economy which has extremely high levels of globalization, that is, increased linkages with other countries in the global economy. With a GDP of $7.89 trillion dollars it is the second largest economy in the world, second only to the United States when measured on a Purchased Power Parity basis. However with a nominal GDP of $1.222 trillion dollars, it is ranked third (Japan moves in as second) when measured in current exchange rate terms. However these astounding levels are not shown in GDP per capita. The country's GDP per capita is $5943 (on a PPP basis) ranking it 99th out of 179 countries. In 1978 China abandoned its involvement in the commune system in place of a new system where households could make their own decision in the free market and this is portrayed in the following graph which shows the exponential growth of China's GDP over the last 50 years (Lardy, 142).

China's strong and positive growth over the last five decades can be shown in its quality of life statistics. Life expectancy grew from 41 years in 1950 to 71.6 years in 2005 whilst infant mortality rates have more than halved from 85 per 1000 births in 1970 to a mere 30 per 1000 in 2005. Levels of poverty have also decreased, from 18.5% to 16.6% in thee last decade alone. The literacy rate of 83.5% in 1999 rose to 90.9% in 2005. Since 1980, over 400 million people in China are no longer living on less than US$1 a day. As a result of these improvements, China's Human Development Index (HDI) rose from 0.523 to 0.754 between 1975 - 2005. The latest record of HDI was taken in 2006, China achieved a score of 0.762, ranking it 94th in the world (Richardson, 54).

Discussion and Analysis

Since China opened its economic “doors” to the world in 1979 , and even more so after joining the World Trade Organization (WTO) in 2001, globalization has lead to copious amounts of foreign investment into China, which has numerous impacts on the Chinese economy, affecting it in different ways. Firstly, foreign investment allows the formation of Transnational Corporations (TNCs) which as a result increases employment opportunities and thus lowering the unemployment rate. The large amounts of foreign investment are due to the number of international mergers and takeovers. Also, an increase in foreign investment has increased domestic competition, thus lowering the prices of prices of goods and service's in the economy increasing demand and stimulating the economy.

TNCs have allowed a significant increase in trade flows. China's transition from a planned economy to a market based economy and increased involvement in the world economy, has seen China's share of world trade increase 6 fold since 1980. Major trade agreements also encourage further trading with the world economy such as Asia-Pacific Economic Cooperation (APEC) and World Trade Organization (WTO). Since 1994, 65% of China's export growth has come from Foreign Direct Investment, of which 83% has come from ...