China strategies international business cycle Flashcards
P1 (open door policy)
CAUSE: In response to global financial deregulation and the rise of capital flows in the 1980-90s, China implemented ODP to take advantage of this.
* Started with SEZs (special economic zones) with a range of incentives,
* Lax enviro regulations, low tax, cheap labour; this encouraged financial inflows and TNC development.
EFFECT:
1. Big increase in FDI for chinese economy. CN surpassed the US as the largest FDI recipient in 2002, reaching 116bn by 2016.
2. Led to increased technical efficiency cuz firms increased their capacity which led to increased e/g. 4% in 1979 to 14% in 1994.
LIMITATION: creation of a rural-urban divide which worsened DOI. Gini: 0.16 (1978) -> 0.49 (2008)
Still effective in taking advantage of IBC boom cuz it increased growth but at the expense of economic development.
Open door policy
The policy advocated that all countries should have equal access to trade opportunities in China.
Established by the US
P2 (trade flows/ trade liberalisation)
CAUSE:
* In response to growing trade liberalisation, and exponential increase in G&S trade, CN reduced their own protectionism to take advantage of global export markets.
* WTO entry in 2001, average tariff went from 32% 1979 to 15% 1994.
EFFECT:
1. Allocative efficiency increased due to reallocation of resources into efficient industries. Increased e/g. Evident as % of GDP increased from 16% 1979 to 36% in 1994.
LIMITATION: worsened enviro-degradation as CN’s CO2 emissions tripled from 2000 to 2018.
P3 (GFC)
CAUSE: In response to the global recession and the effects of financial contagion, China implemented heavily expansionary FP and MP alongside a shift in focus to domestic policy.
WHAT WAS IT:
* 4bn RMB stimulus, 72% allocated to investment expenditure
* Would increase govt expenditure, AD, ST e/g
* Developments in investment infrastructure can boost LT e/g, and that’s more sustainable.
EFFECT: As a result, CN e/g wen from 6% (2008 Q4) to 10% (2009 Q3) alongside a decrease in u/e 4.3% (2008) to 4.1% (2010)
Therefore effective in responding to global recession
GRAPH: Kuznet’s Curve. bonus content essay graph cheat sheet. CN focused more on enviro-policy.
P4 (Paris agreement)
CAUSE: In response to global pressures and international corporations, CN implemented environmental policies starting with the ratification of the paris agreement (195 nations with a 1.5-2 degrees celsius for warming.)
CN followed through with their policies in 13th adn 14th 5-year plans.
WHAT WAS IT: Specifically, 100bn invested into the largest solar farm in the world, selling 5 million electric vehicles by 2020 - accomplished!)
EFFECT: contributed to China’s becoming the world leader in renewable energy production. 44% of total electricity capacity is from renewables.
LIMITATION: decrease in economic growth to 7.8% avg post GFC.
But still moderately effective
Not Paris agreement compatible yet though.
GRAPH: kuznet
P6 (recent global trade / one belt one road)
CAUSE: In response to growing concerns from global trade issues, (US CN trade war etc), CN focused infrastructure developments towards OBOR to put them at the forefront of trade relations.
EFFECT:
Estimated cost of 4-7 trillion USD. expected to life global trade by 2.3trillion USD in the next decade. Increased e/g.
Also improvement in DOI. focused infrastructure development in rural/non-SEZs which will close the rural-urban divide. Gini: 0.49, 2008->0.46, 2019
LIMITATION:
* long, long term effect
* There are potential environmental, social, and corruption risks associated with any large infrastructure project. These could include, for example, biodiversity loss, environmental degradation, or elite capture. These risks may be especially significant in countries involved in the BRI, which tend to have relatively weak governance
* Macro risks. For some countries, the financing required for BRI projects may expand debt to unsustainable levels. For instance, the construction of the Lao PDR section of the Kunming -Singapore Railway has an estimated cost of US$ 6 billion – nearly 40 percent of GDP of Laos in 2016.
Belt and road initiative
The Belt and Road Initiative is a massive China-led infrastructure project that aims to stretch around the globe.
P7 (COVID-19 response)
CAUSE: In response to global pandemic, CN implemented highly expansionary fiscal policy and MP to avoid and bring the economy out of recession
WHAT WAS IT: FP involved 4.6 trillion RMB stimulus -> tax relief, unemployment benefits and medical equipment. GE and e/g increased.
EFFECT:
* People’s Bank of China reduced reserve ratios -> loanable funds supply increased.
* Overall this helped to increase growth from -6.8% to 18.3%
*
LIMITATION:
* extremely strong zero covid policy led to decreased standard of living and eco-development during lockdown periods.
* Good control of virus but trade off with e/g and standard of living.
