China and Its Impact

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China’s Unprecedented Economic Growth

China’s open door policy paved the way for the tremendous growth of its economy in so short a span of time. China’s Gross Domestic Product reached US$2.2 trillion and its foreign trade was at US$1.4 trillion in 2005.  Average annual GDP growth from 2000-06 was 9.4%.  The combined higher GDP rates and stronger growth made China’s contribution to the growth of world gross output higher – 22% from 2000 to 2005.

Foreign Trade

The growth of exports of goods and services from China rose to more than 12% per year on average. In 2000-04, China achieved a 24% growth.  Its share in the international goods market rose from 2.5% in 1993 to 7.5% in 2005.

Product category of the goods exported between 2001 and 2004 were: office machinery and data processing equipment (SITC 75), garments and clothing accessories (SITC 84), devices and equipment for telecommunications and sound recording and reproduction (SITC 76) and electric machinery (SITC 77).

These figures mean that first, China no longer specialises in exporting exclusively in textiles,
garment making, toys, footwear, and travel and sports articles, although it is still exporting these products.  Due to the growth of foreign sales of high-tech electronic products, electrical
machinery, office machinery, telecommunications and sound equipment, China’s exports are getting more sophisticated. This rapid change in China’s range of exported commodities mean that in coming years the country will most likely export products such as automobiles and car parts, naval construction, construction machinery, and products for high-tech telecommunications and biotechnology in the future.

Energy and Raw Materials

In a very short span of time, China evolves into a major consumer of energy. Between 1990 and 2005, the energy consumption increased by a factor of 2.3 and, compared to world consumption, its percentage increased from 8.4% to 14.7%. Its coal consumption doubled, while its oil consumption trebled.

When it comes to other raw materials, China also imports large quantities of iron, zinc, lead, copper and nickel. China makes up 15% of the world consumption of these five metals.

As Streifel (2006) shows, China accounts for two-thirds of the increase in the world consumption of the main metals between 1999 and 2005.  China’s impact could be felt in the increase in demand and the consequent increase in the prices of these metals.

China is also a huge importer of vegetable oils, cotton and rubber.  An increase in the demand curve of these products also affects the prices of these raw agricultural materials.

As a matter of fact, the increase in China’s demand for both energy and non-energy raw materials led to the increase in real terms trade for the countries that export these raw materials in Africa, Asia and Latin America (Kaplinsky, 2006).

Foreign Investment

China is a major recipient of foreign direct investment (FDI). Between 1990 and 2005, the FDI received by China increased from US$3.5 billion to US$72.4 billion (8% of the world total).

China also makes investments abroad.  In 1990, it made US$830 million abroad or 0.3% of the world total.  In 2005, it made foreign investments worth more than US$11 billion or 1.5% of the world total.

Chinese foreign investments are handled by a small group of companies that are beginning to gain international recognition such as Lenovo, Haier, Huawei, TCL, ZTE, CNOOC, Sinopec, etc.  Its investments are highly diversified geographically. About 40% of this investment is in Asia (India, Hong Kong, Vietnam, etc.) and 30% in Europe (the UK, Germany, etc.), Africa, Brazil and Russia received minor shares of Chinese investments. China invests in these sectors: information and communications technologies (ICT), heavy industry and electronics.

Chinese companies (state-owned or private) invest abroad for various reasons. Aside from the goal of becoming a big multinational companies, other aims include:

–    To get around restrictions in trade barriers in markets to which they find it difficult to export such as Huawei in Africa and in Russia
–     Acquire popular trademarks such as IBM’s computer division by Lenovo; Rover and Ssangyong by SAIC; MG by Nanjing Automobile
–    Gain access to high technology and modern management know-how
–    Control sources of energy and non-energy raw materials such as mines in Australia and oil fields in central Asia and North America

Chinese foreign investment will increase greatly in the future.  Some estimates that China investment to grow to US$60 billion in 2010.

Financial Resources

China is a major holder of foreign currency reserves. In mid-2006, China held US$943.6 billion, making it the first in reserves in the world.

Between 2000 and at the end of 2006, China’s foreign currency reserves increased from US$165 billion to more than US$1 trillion. The increase was mainly due to the excess in its current account balance and to the net inflow of foreign capital.

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