What would be the impact of China’s economy on the world’s trading system?
Among the recent economies that the world has witnessed, growing through the ranks of the middle income earners, defying the odds to compete among the world’s largest income earners is China. This state boasts the world’s populous nation, accounting for 20% of the same.
To this, the gross GDP has been increasing steadily from the year 2004 ($ 1,690), and if a 7% growth is maintained per year and for ten consecutive years, it is projected that this would increase by several folds by the year 2025.
This is the scenario that the world’s economies are yet to encounter, and perhaps its consequences are the ones that form the subject for debate the world over. One major anticipated impact is that with China’s limiting natural resources e.g. energy, prices from suppliers is likely to hike.
Moreover, it is unlikely that China will replicate its previous successes in the export market (doubling it every half a decade) in the recent years thanks to protectionist defenses. This would prompt them to broaden their local demand albeit with imminent challenges.
Finally, with the projected growth, China will no doubt hike its military expenditures consequently propelling it to rank among the world’s superpowers (Kenen, 2011).
What would be the impact of China’s economy on the world’s monetary system?
The 2007/8 economic recess has evoked, once again, an incessant debate that is a reform in the international monetary policy. In fact, a majority of the emerging economies are cautious of pegging their currencies against the US dollar, with the Euro acting as their regional currency.
To this, they reflect on a natural change of the monetary policy to a multipolar international system thanks to the emergency of the China’s dominance hypothesis in the equation.
De jure, a majority of the budding Asian economies peg their currencies to the US’s; however, de facto, these economies are already dependent on China’s economy.
In essence, the effect of emerging China is already being felt. Evidence shows that the world’s monetary system is in the threshold of becoming a tripolar economy, and the renminbi, is slowly domineering the Asian foreign-exchange.
Both regionalily and globally, analyses imply that the trends of the Asian currencies replicate the renminbi (Eichengreen, 2010).
The impact of the China’s economy with respect to western-based global corporations
China’s impact on the western-based global corporations is one of a debatable context especially to the US’s firms, its major trade partner. To many pundits cum politicians in the US, the argument is that the Chinese economy has gained ranks in the world’s economy at their expense.
This is in contrary to other experts who believe that there is no correlation. To this they point out the country’s cheap labor and loathing of its currency as the reason for its success.
Still on the US, Americans derive the benefits of cheap commodities from Chinese companies; nonetheless, this does not augur well with the local-based corporations since they risk shrinking their market share, consequently eating into their profit margin.
Furthermore, with the availability of cheap labor in China, many local-based firms became victims of insufficient labor force. This is owed to the fact that many manufacturing industries shifted their bases to China after it entered WTO.
Chinese influence were replicated in many more states around the globe, and with its potential, further damage on the other global corporations would be aggravated.
How might the concepts of guanxi and guanxiwang come into play? Are there any ethical considerations for a western business?
By definition, guanxi simply means engendering a good mutual relationship to foster long-term benefits.
On the other hand, guanxiwang furthers this relationship to include a network of benefits between two parties and beyond.
Fundamentally, guangxiwang could be along social or economic fronts. With respect to this question, the economic front, which is basically a business network, is what matters.
Here, firms agglomerate with an aim of creating a market that optimizes on profits while at the same time decimates the costs at the backdrop of a healthy relationship.
As opposed to previous markets, the recent ones put more emphases on relationship market orientations. This amounts to a paradigm shift from transaction-based typified by competition as its main driver to aforementioned.
This is manifested in the west, for instance, the US.
To this end, America’s business networks are characterized by partners’ acknowledgement of the need to save on wastages of all sorts: “time, materials, equipment, and workers” (Curcuru, Dvorak & Warnock, 2008). This goes a long way to nurturing a good relationship among the stakeholders.
Discuss three cultural tips for US business people doing business in China
In order to be a successful US-based merchandiser in China, there are several cultural tips that one has to adhere to.
One such tip is that the perspective one ought to nature of a Chinese culture is one of a mosaic type. In a nutshell, the outlook here is that there are several consumer profiles that exist, consequently providing for flexibility of companies to suit in precise markets.
Second, one should be keen to understanding the cultural background and the social etiquettes. China is rich in culture, spanning several centuries back. In effect, understanding this together with aforementioned factor would function to avert relationships that would jeopardize a business.
Finally, the merchant should understand that the recipe to tapping into this market would be enhanced by exploring a market-based approach.
Simply put, one ought to acquaint him/herself with the locals’ preferences in order to acclimatize with the market precisely (Dooley, Folkerts-Landau & Garber, 2004).
Curcuru, S. T., Dvorak, H., & Warnock, F. (2008). “Cross-Border Returns Differentials,” Quarterly Journal of Economics, 123 (4), 1495–1530.
Dooley, M. P., Folkerts-Landau, D., & Garber, P. (2004). “The Revised Bretton Woods System,” International Journal of Finance and Economics, 9 (4), 307-313.
Eichengreen, B. (2010). Exorbitant Privilege – The Rise and Fall of the Dollar and the Future of the International Monetary System. Cambridge: Cambridge University Press.
Kenen, P. (2011). “Beyond the Dollar”, paper presented at the AEA Allied Social Science Association Meetings. Cambridge: Cambridge University Press.