The Chinese century, the rising economy and its impact on the global economy, the balance of power, and your job, Oded SHENKAR, 2005

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The Chinese century, the rising economy and its impact on the global economy, the balance of power, and your job, Oded SHENKAR, 2005

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Abstract

China is at the heart of the present-day economic debate. China is indisputably booming economically. Its enormous growth rate attests of this evolution; all economists agree on this assertion. What seems more debatable at the moment is the impact this rise could have on the global economy, and its corollary, what response the States should bring to this economic change, if there is any. The answer to these questions could be easy, if studied in terms of economic ideologies: on the one hand, supporters of free-trade could consider this rise as beneficial to the whole economy, since it brings an enormous market and could entail a decrease of prices. On the other hand, for others, it could jeopardize the national economies, undermining the employment. But wouldn't it be naïve to think that way? The question, very complex, seems to transcend economic ideologies. Indeed, I agree with O. Shenkar when he intends to explain, in The Chinese Century, to what extent the rise of China is not similar to the forms of development which we have been able to observe up to now. What makes the case of China unique is its ability to both climb the technology ladder and keep a comparative advantage in activities requiring low-cost labour-force; therefore, we can imagine that the impact of China could be double-edged for the global economy.

Introduction.
What are the factors which could have led O Shenkar to the conclusion?
Two categories of assets tend to underscore the high economic potential of China.
The way he approaches the question.
Considering the high probability that China becomes one of the economic leaders of tomorrow.
Protectionism and heavy inconveniences.
Conclusion.

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[...] Shenkar neglected a very interesting theory which can be relevant to the analysis of the rise of China, in my opinion, according to which the price of oil could discourage dislocations and would put an end to globalization. This does not seem to me to be fanciful, if we take into account the increasing demand of raw materials and particularly of oil, of China. If China is to keep on growing economically speaking, the domestic demand of oil could reach a huge level. [...]

[...] In a protectionist context, the Chinese dollar reserve could be a sword of Damocles to the US, and to the world, since if China dumped it, a dollar crash and a global financial crisis would be unavoidable. I think that the second scenario could be triggered by any minor tension, what makes it more probable than the first one. Furthermore, I do not believe that China could lose its comparative advantage in labour-intensive industries, given the huge amount of workers and unemployed people. [...]

[...] The Chinese standard of living should rise in the future, what could be beneficial to the Chinese society, but also to the global economy, with a rise of the domestic demand, and a rise of wages. We must not that some changes are already palpable, among which the expansion of trade-unions in China. As a conclusion, I insist on the uncertainty of my assertions. To me, China should be a global leader in the future, thanks to its ability to be competitive in highly qualified activities as well as in labour-intensive industries. [...]

[...] Shenkar about the rise of China in The Chinese Century, and their validity in my opinion. Then, I will try to display my conception of the impact of the rise of China, and the adequate responses that States could put into practice to fight it back, with O. Shenkar's suggestions as a starting point. Let's first study O. Shenkar's opinion on the rise of China. What he tries to prove throughout his book is that China's economic potential is similar to the American one in the nineteenth century, and that it could, on the long term, be the first economic power in the world. [...]

[...] In addition, the terms of trade could be improved because the price of products coming from China would decrease and the price of Chinese imports could increase. This could result in a rise of the purchasing power in the developed countries. Nevertheless, this could not be the case for the developing countries which have more or less the same kind of exports and imports as China, such as Cambodia or Bengladesh, because of the end of the textile quotas. At the same time, if labour markets are totally flexible in developed countries, employees who lose their jobs as a result of Chinese competition could be re-employed in more productive industries. [...]

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