How can China Learn From Other East Asian Country Economy Framework and Model?
China is a country located in East Asia region, which has a population of 1.355 billion people. The country has a nominal GDP of about $10.38 trillion (Singh, Nabar, & N'Diaye, 2013) has and is one of the fastest growing economies in the world. More specifically, China has the world's second biggest economy behind the United States. It should be understood that the outstanding performance of the Chinese economy today is as a result of various economic reforms that have been adopted since 1978.
Before 1978, China faced the problem of inefficient economic growth. It was caused by the failure of the centrally-planned economy. The key priority during this time was the development of heavy industry. To solve the issue, the Chinese government decided to undertake economic system reforms. Between 1978 1992, the country planned to introduce the economic system with market adjustment (Huang, 2012). Thus, after 1978, the country employed the socialist economic system, enhanced industrial upgrading and increased economic development. The introduction of market adjustment in the planned economy increased autonomy in decision-making processes, promoted competition and ensured launching of the reforms in state-owned enterprises. From the year 2002, the country joined World Trade Organization (WTO), which has played a key role in creating fair international competition. Thus, the main focus of this paper is the analysis of the state market institutions as well as establishing how China can learn from other East Asian countries economic frameworks and models.
There are countries in East Asia, for instance, South Korea and Japan, that can become the role-models for China as far the economic development is concerned. These countries have employed specific approaches, for example, South Korean model, which have played a crucial role in accelerating its economic development. Thus, the employment of South Korean model would, therefore, help in improving Chinas state-owned enterprises condition specifically, which, in turn, would contribute to the countrys economy, in general.
State-owned enterprise (SOE) refers to the government-owned corporation (Shin, 2013). These are legal entities that are involved in different commercial activities in support of the government (Shin, 2013). The legal status of SOE varies from a share owned by the government to stock corporations with a state as the primary stockholder. The introduction of SOE in China was aimed at improving its growth and development by ensuring that those enterprises are involved in almost all sectors of the economy. However, the return realized from SOE is much lower than that of the private companies. As a result, the government has realized that the only way to improve the situation is through reforming SEO. The main reason thus is to make sure that these enterprises abide by the governments order to focus on the strategic sectors of the countrys economy. Additionally, the reforms are aimed to make sure that industries of SOEs operation remain dominant so as to maintain control over a gradually complex economy.
At the same time, it should be noted that Chinese economy is facing serious problems that are negatively influencing its growth and development. Thus, apart from undertaking reforms in State Owned Enterprises, there are lessons that China can learn from other East Asian countries frameworks and models. China can follow the example of South Korean economic miracle and Japans Postwar Miracle.
Thus, Korean economic miracle relates to the economic model employed in South Korea, which involved the capacity of the state to apply a liberal policy (Shin, 2013). It resulted from the relative state autonomy, which was protected from demands of the social classes. Thus, it should be noted that domestic dominance was the key factor that made it possible for the state to introduce the economy of South Korea into the world markets, which determined its growth and development.
In the 1960s, the GDP per capita of South Korea was equivalent to that of Congo. However, due to the continuous efforts by the South Korean planner of positioning itself in the global market, the economy of South Korea grew progressively. By the year 1996, South Korea was ranked the 12th largest economy in the world (Shin, 2013). It registered a 10% average annual growth rate of GNP between the years 1965 1980. Thus, the country managed to lay down the foundation for future economic success.
The theoretical explanation of South Korean transformation falls mainly into two categories, which include a neoliberal position and relatively autonomous supremacy of the developmental state (Shin, 2013). According to the neoliberal point of view, the discipline of the world market can significantly influence a developing nation. Thus, it is clear that a fair competition in the world market is crucial for the growth of such economies.
Therefore, China can borrow the methods applied by South Korea, namely the employment of the neoliberal position model, in an attempt to accelerate the growth and development of the countrys economy. China needs to learn how to introduce itself into the international market. By establishing the connections with the global market, it will be easier for China to benefit from the trade that would involve different nations. According to Shin (2013), there is no state that can survive on its own. Every country has to be involved in the international trade to import the products that it does not have and export its production surplus.
Thus, engaging in the international market activities, the country would be able to import crucial products, for example, oil and gasses that are needed to drive and develop different production activities (Wang, 2013). As a result, increased production would create employment opportunities for many people in the country. Employed individuals would earn income that would be used to buy goods and services thus boosting the overall economic processes. In the long term, there will be an increased money circulation in the country, which, consequently, would lead to the economic development.
Additionally, China would be able to export products and services produced in the country. For instance, China would be able to export electronics and automotive that are produced in the country to other nations of the world. As a result, China would earn foreign exchange, which is particularly important for the international trade.
Moreover, China can also learn from the neoclassical growth theory that was employed in Japan. The theory provides guidance on how a stable economic growth rate can be realized due to the right amounts of the three driving forces, which include capital, labor, and technology (Zhang, 2014). It also explains that, by changing the amounts of capital and labor in the production functions, it is possible to reach equilibrium. According to Zhang (2014), when a new technology is employed, there is the need to adjust the amount of capital and labor to maintain growth equilibrium.
Through the application of neoclassical growth theory, China can learn how to properly and effectively adjust the capital and labor in the production processes. Bringing the technology to the appropriate level, it will employ an optimal amount of capital and labor (Zhang, 2014). Thus, it will increase the efficiency and reduce wastage in the production processes. Increasing the efficiency of different sectors of the economy will thus reduce expenditures. Respectively, through saving, the country would be able to increase the amount of money invested in various development projects, which would contribute to the development of the Chinese economy.
The neoclassical growth theory can also be applied in relation to the role of the development of technology and its contribution to the economic growth. Just like Japan invested the return on investment to improve its technological sphere, China should also make efforts on raising the level of technology in different sectors of the economy (Zhang, 2014), which would reduce the costs of production. As a result, the cost of different goods and services will decrease. It will lead to the rise in sales. Buying ability of the citizens will grow, and increased sales would, in turn, lead to the augmentation of profit margins. Thus, different industries and companies will have more money available for investment in various development projects that can boost the countrys economic development.
In conclusion, it is true that there are many issues that China can learn from the economic theories and models employed in East Asia. Through employing these theories and models, it would be possible to improve the state of the Chinese economy. The participation in the international market and employing advanced technology to balance the level of capital and labor used in different sectors of the economy can greatly contribute to the pace of the economic growth.
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