Essay # 4 ~ Analyse the effects of globalisation on an economy other than Australia. (20 marks) (approx 1500 words) (60 minutes to write) (A-Range)

Introduction and Recent Trends blended together.

As a result of the increasing economic integration of global nations into a single market, China has undergone a significant transformation from a centrally planned and closed economy into the world’s second-largest economic powerhouse. China’s rapid industrialisation, modernisation and urbanisation represent one of the most significant developments in the global economy since the late 20th century. In 1978, the Chinese economy was valued at USD $149.5 billion, accounting for less than 2% of global GDP. By 2023, China’s nominal GDP had surged to approximately USD $17.5 trillion, positioning it as the second-largest economy globally, after the United States, and the largest when measured in purchasing power parity (PPP) terms. China’s economic success has been driven by government strategies, first introduced under Deng Xiaoping in 1978, including agricultural reforms, open-door policies, cuts in protectionism, joining the WTO, its hukou education system and One Road, One Belt policies to stimulate economic growth (i.e., quantitative) and economic development (i.e., qualitative).

Strategy 1: Open Door Policy (1980s) on China’s Growth

Example: write about foreign investments by MNCs into China

The Open Door Policy, implemented in the 1980s, played a crucial role in raising China's GDP growth rate. This strategy involved opening China's economy to the foreign investment (FI) of multinational corporations (MNCs) through the creation of Special Economic Zones (SEZs) in cities such as Shenzhen, Zhuhai, and Xiamen. These zones offered tax incentives, less stringent environmental regulations and cheap labour, aiming to attract foreign capital and technology. This led to over 2,600 foreign-invested enterprises being approved and injecting USD $3.7 billion in foreign investment by 1985 before rising to more than 14,000 MNCs and USD $6.6 billion in foreign investment (1990), reflecting the global economy’s growing confidence in China’s liberalising economy. 

As a result, between 1980 and 1990, China's average annual GDP growth rate rose to 9.3% GDP, compared to 6.1% in the preceding decade. By 2023, China had become the 2nd-largest recipient of FDI globally, behind the United States, with inflows exceeding USD $180 billion. This was used to increase China’s capital stock, job creation, urban development, and infrastructure growth, leading to the rapid expansion of its steel manufacturing and export sectors. The Open Door Policy laid the foundation for China’s export-led growth model, which has underpinned its rise as a global economic power.

Strategy 2: Cuts in Tariff & WTO on China’s Growth

Example: write about China’s trade (exports and imports)

China’s reduction of tariffs (taxes on imports) in the 1990s and its accession to the World Trade Organisation (WTO) in 2001 were pivotal in expanding China’s trade flows. In 1992, China’s average tariff rate was over 40%. By 2001, it had dropped to below 10%, reflecting China’s intent to integrate into the global trading system. WTO membership brought with it binding commitments to continue its economic liberalisation, transparency, and non-discrimination in trade. As a result, China gained access to new markets with its comparative advantage and large-scale economies of scale led to export growth of 1,200% from 2001 to 2023. In 2001, China’s exports were worth USD $266 billion; by 2023, they had reached over USD $3.4 trillion, making China the world’s largest exporter of manufacturing, dominated by electronic machinery and equipment, including products such as computers, mobile phones, and circuits. By 2022, exports in this category totalled over USD $880 billion (approximately 26% of China’s total exports), securing its central role in global electronic supply chains. 

As China opened its economy, its GNI per capita rose from USD $200 in 1980 to over $12,850 in 2023. This led to a significant rise in China’s imports of consumer goods such as luxury items, vehicles, and food improving China’s citizens standards of living whilst it became the world’s largest importer of raw materials ~ importing over 70% of global iron ore exports and more than 10 million barrels of crude oil per day by 2023 to power its construction and steel manufacturing sectors. As a result, import values rose to USD $2.6 trillion in 2023, reflecting China’s greater integration into global supply chains and emergence as the second-largest economy in the world by nominal GDP.

Strategy 3: One Belt, One Road on China’s Growth

Example: write about China’s infrastructure investments (capital stock)

In 2013, China launched its One Belt, One Road (OBOR) initiative. This is a global infrastructure and investment strategy aimed at enhancing trade connectivity across Asia, Europe, and Africa. It consists of the Silk Road Economic Belt (overland) and the 21st Century Maritime Silk Road (sea routes). Through OBOR, China invests in significant capital stock, such as ports, railways, highways, and energy projects in over 140 countries, promoting greater productive capacity, international trade and strategic partnerships. This initiative sets the limits to economic growth by creating new export markets for Chinese goods and services while securing global supply chains and energy routes.OBOR reflects China’s shift toward global economic leadership and its long-term strategy for sustained global economic integration.

Strategy 4: Fixed Exchange Rates on China’s Growth

Example: write about China’s RMB or Yuan currency

China’s use of a fixed exchange rate has been a significant strategy in sustaining its export-led economic growth. A fixed exchange rate is when a country’s currency is pegged to another currency ~ typically the US dollar ~ to maintain stability in trade and investment flows. From the mid-1990s until 2005, China pegged the RMB (Yuan) at around 8.28 to the US dollar, keeping China’s exports relatively cheap and highly competitive in global markets. This undervaluation was criticised by major trading partners, especially the United States, which accused China of currency manipulation to gain an unfair trade advantage ~ contributing to the US–China trade war that escalated under President Trump in 2018. Since 2005, China has allowed more exchange rate flexibility when it moved from a strict peg to a “managed float” system, allowing the RMB to gradually appreciate. Between 2005 and 2014, the RMB appreciated by approximately 35% against the US dollar, reaching a peak of 6.04 RMB/USD in January 2014. However, following capital outflows and slowing growth in China in 2015 as it transitioned toward more consumption-led growth, China devalued the RMB in August 2015, triggering global market volatility to boost its export competitiveness and increase GDP growth.

Strategy 6: Hukou Reform on China’s development

Example: write about China’s adult literacy rates (i.e., HDI)

China’s economic development is clearly reflected in its improved Human Development Index (HDI), which measures adult literacy and schooling, life expectancy, and GNI per capita. Scored from 0 to 1, China’s HDI rose from 0.501 in 1990 (low development) to 0.768 in 2021, indicating high human development. A key contributor was education reform. The hukou system had restricted rural migrants’ access to urban schools, but since the 2000s, reforms have eased these limits in smaller cities. Education spending increased from 2.8% of GDP in 2000 to 4% in 2020, particularly benefiting rural areas. As a result, average adult schooling rose from 6.4 years in 1990 to 8.9 years in 2021 (UNDP). These policies enhanced labour productivity and equity. With over 4.7 million STEM graduates annually, China’s human capital development has supported innovation and sustained long-term economic growth.

Strategy 7: Environmental Quality in China’s Development

Example: write about China’s environmental quality

While China’s rapid economic development has lifted 800 million people out of poverty, with World Bank data showing that the proportion of people living on less than USD $1.90 per day fell from 88% in 1981 to under 0.5% by 2020, it has had severe environmental consequences. 

The drive for rapid industrialisation, modernisation and urbanisation, from the 1980s onwards, led to over-reliance on coal-powered energy for its steel manufacturing industries and insufficient environmental regulation. By 2006, China surpassed the United States as the world’s largest emitter of carbon dioxide. As of 2023, it accounted for over 30% of global CO2 emissions. Urban air pollution became a major issue, with cities such as Beijing and Shanghai frequently exceeding WHO-recommended air quality levels. A 2017 study from Berkeley Earth found that air pollution contributed to over 1.6 million premature deaths annually in China. Water pollution, deforestation, and land degradation have been widespread. The Chinese government has responded with the “Beautiful China” initiative, implementing green technologies and committing to peak carbon emissions by 2030 and achieving net-zero by 2060. Nonetheless, the environmental costs of past growth remain a critical challenge for sustainable development.

Conclusion

China’s economic transformation since 1978 demonstrates the success of state-led reforms in driving growth, trade, and development. Policies such as the Open Door Policy, WTO accession, and education investment have lifted millions from poverty, raised GNI per capita, and improved China’s HDI from 0.501 in 1990 to 0.768 in 2021. However, the environmental costs of rapid industrialisation reveal key trade-offs, making China a vital case study in balancing growth with sustainability.