GLOBALIZATION & CHINA

Globalization & China



Globalization & China

Globalization

While there is much debate about how to define globalization, mainstream approaches tend to focus on its economic nature and the processes that encourage nations, business and individuals to become integrated into the global market. From this perspective, globalization is commonly understood being a primarily uncontrollable force that encourages a free-market ideology and perpetuates the transnational movement of capital, labor, and goods. Broader definitions recognize its political and social dimensions and point to the new information and communication technologies as a significant aspect of globalization. From this wider perspective, globalization is associated with transnational phenomena and new forms of bridging geographic and cultural distances. This form of communication has been accompanied by the ability of individuals the world over to connect in virtual communities across interests and concerns.

Globalization as a term entered mainstream discussions in economics and political science from the mid-1990s onwards. Much of the focus on globalization has been on the flow of money and capital between countries, the changing role of governments vis-a-vis their citizenry, the increased movement and migration of individuals within and between countries, and the growth and expansion of multinational corporations and transnational organizations. For example, globalization is often associated with the growing power of the World Bank and the International Monetary Fund. These entities have played a critical role in incorporating developing countries into the global market place by providing loans and encouraging entrepreneurial, open market activities. However, these organizations are often also associated with implementing Structural Adjustment Policies (SAPs) that due to a series of negotiated actions and activities, have led to a reduction in government services such as health and education in many developing countries. A serious disadvantage of the mainstream focus on the purely economic effects and challenges of globalization is that it ignores the social consequences of the process on families and communities (Baars, Dannefer, Phillipson, & Walker, 2006).

Financial Development and Corporate Finance in China

As was in the case with other East Asian economies such as South Korea and Japan, China's rapid industrialization has been achieved through tight state controls on the financial system that allowed (initially scarce) capital to be allocated to “strategically” key industries. In such financially repressed financial markets, the cost of capital would usually be artificially maintained low. The government, hoping to jump-start economic development with robust export growth, would encourage economical capital to be allocated to capital-intensive industries such as heavy and manufacturing industries that would produce tradable goods. While this sort of developmental strategy is typical among emerging market economies, what is unique about China's case is that; 1) because of its communist past, the state-owned enterprises (SOEs) have played an important role in industrialization and export growth as well as in capital allocation process; 2) because of more direct government involvement in commercial policy and corporate finance (in contrast to more private-government collaborations in the case of Korea and Japan), the government policies have been much less responsive to market forces, resulting in over investment in ...