Exploring the Impact of Globalization on China

Introduction

Scholars define globalization differently but all of them ae to some extent confined to a country’s integration into the international labour division as well as the integration of production factors in international scale. For example, according to Knox et al. (2014), globalisation is the incorporation of national economies into world economy through foreign direct investment, trade, international movement of employees, short-term movement of capital, and international flow of technology. Through globalisation, Nolan (2014) asserts that the economic agents in any country are influenced by the events in the world at a much higher degree than before. This paper seeks to explore the impact of globalisation on China. In particular, the papers focusses on the impact of globalisation on China’s international trade and trade arrangements and international migration of people.

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Impact on international trade and trade arrangements

Following globalisation, Lee (2016) writes that preferential trade agreements have emerged a significant trend in the world economy and countries are increasingly subscribing to preferential trade agreements in order to survive the intensifying competition in the global market. China is not an exemption. In many cases, China has formed free trade agreements with different countries in order to remain competitive in the global market. In 2015, China formed bilateral trade relations with Australia through the formation of the China-Australia Free Trade Agreement (ChAFTA). He (2015) notes that through ChAFTA, China wanted to secure a stable supply of energy resources for its domestic economic development and therefore negotiated for importing its workers to work on the projects it funded in Australia as well as the creation of a more receptive environment through relaxation of Foreign Investment Review Board screening threshold on its investors. Following the implementation of ChAFTA, China has benefited with its citizens working in Australia in the projects it funds (see fig 1) as well as a good number of its investor investing in Australia.

subclass 457 visas granted by the Australian Government (Australia-China Relations Institute 2019)

Through active participation in bilateral and regional free trade agreements, China has been able to enter the World Trade Organisation (WTO). According to Stojanov (2013), China has strategically engaged in the process of globalisation and used it to foster its domestic economic reforms. Analogously, Fidrmuc et al. (2013) state that in order to liberalise the service sector, China has adopted an incremental approach in mitigating the impact of foreign competition whereby it develops various policy objectives to promote the growth of domestic industries. In addition, most of China’s bilateral trade relations seek to have Chinese citizens stay in other countries and as a result they are able to learn business ideas which they bring back home. On the other hand, Yu (2018) asserts that in less than three decades, China has grown from playing an insignificant role in international trade to being among the largest traders in the world thanks to globalisation. In agreement, Rasoulinezhad (2017) writes that the most important milestone in China’s growth in trade occurred in 2001 after China joined the WTO as it had to revise and modify its administrative regulations and trade laws in order to be more like the global atmosphere. For example, after its accession to the WTO, China reduced its simple import tariff from 15% to 10% in 2006 (Yu 2015). When China reduced its import tariffs, its trading partners particularly the members of WTO cut their import tariffs against Chinese products as well, which allowed China to sell its products overseas at a competitive price. Following accession to WTO, Chin experienced an average of 50.98% trade openness (Yu 2015), which shows the extent to which China is involved in trade with other countries. China has experienced exponential growth in exports following free trade agreements and accession to the WTO. According to WTO (2019), China continues to expand faster than most of the other manufacturing economies (see fig 2).

Real GDP growth of selected economies (WTO 2019)

Therefore, China’s accession to the WTO is undoubtedly a major milestone in China’s trade arrangements and has brought huge mutual benefits to China allowing its acquire competitive advantage in the global market. Following accession to the WTO, China has been able to establish trade relations with many countries across the world thus enjoys the scale effects of a large market (Kwei 2013). In addition, Chinese companies have realised greater profits through lowering their fixed costs with the large market (Pop 2016). Hence, globalisation in the lines of international trade and trade arrangements has helped China acquire and maintain its position as a world factory.

Impact on international migration of people

Globalisation is characterised by an increase in international flows of goods, input factors including people, financial assets, and technology. Rapoport (2016) states that countries cannot globalise without migration of people; indeed, the authors argue that globalisation is the age of mass migration. Analogously, Clemens et al. (2014) write that today many people are residing in foreign countries while international migration is much more diverse in terms of origins and destinations of the migrants and this has a significant influence on the world economy. In relation to the world economy, migration is considered to play a critical role in ensuring that labour is efficiently reallocated to where it is valued the most as therefore, Kugler et al. (2018) consider migration as the “grease for the wheel of the labour market”. Chinese are considered among the world’s largest contemporary diasporas and the country has also opened up for foreigners.

In the context of multinational corporations, migration facilitates that use of expatriates as a means of transmitting knowledge. China in its bilateral and multilateral trade relations negotiates for its citizens to work in other countries especially in the projects it funds (Guo 2016). While different countries accept this demand, they also negotiate for their citizens to work in China especially in the projects the fund. Therefore, Chinese are not only migrating to other countries but China is also welcoming people from other countries for work and study purposes. According to the 2020 World Migration Report, China is the third largest country of origin of international migrants with 10.7 million migrants in 2019 (see fig 3).

Top 20 origins of international migrants in 2019 (IOM 2020)

International migration of people has trade-creating effects, which significantly influences the world economy. Hao et al. (2016) identify two channels through which international migration of people affect trade flow namely information effect and preference effect. Information effect holds that immigrants increase bilateral exports and imports as they help overcoming information challenges thanks to them having better knowledge or their home and host country markets (Hao et al. 2016). In the same vein, Bratti et al. (2014) write that immigrants have connections and knowledge about different business and institutional environments as well as linguistic skills that are fundamental in starting and developing export and import activities across countries. Through international migration of people, China has developed ethnic networks through which it is able to develop differentiated products to better meet the needs of consumers in different countries (David et al. 2013). In the same vein, Lin (2014) writes that by Chinese working and studying in other countries, China has developed a better understanding of foreign markets and the needs of consumers in these markets, which has increased the demand of Chinese products in other countries. For example, Chinese mobile phones have different features based on the needs of consumers in different countries as well as the bargaining power of different countries which has driven sales in these foreign markets (Lin 2014). From the preference effect perspective, immigrants generate additional demand for goods from their source countries directly or indirectly through their own consumption, which to some extent affects the preference of natives (Hao et al. 2016). A study conducted by Ortega and Peri (2014) reveal that in developing countries, women are eager to know the beauty products used by Chinese as they are considered to be of superior quality and therefore, international migration of Chinese in these developing countries increase the demand for beauty products made in China. Therefore, international migration and trade can be seen to be complements.

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Conclusion

The aim of this paper was to explore the impact of globalisation on international trade and trade agreements as well as on international migration of people in the Chinese context. The paper reveals that globalisation has shaped international trade and influenced countries to make free trade agreements so they can easily trade with other countries. The paper shows that China has opened its borders to trade with others countries which led to its accession to the WTO in 2006. Following the accession, China had to lower import tariffs for WTO member countries a benefit it also obtained in these countries, which has significantly fostered trade relations between China and other countries across the globe. This free trade has resulted in exponential growth in China’s GDP. The paper also reveals that international migration of people is the grease for the wheel of the labour market, which implies that international migration is fundamental for competitiveness in the global market. Thee paper establishes that China has allowed its citizens to migrate into other countries which has seen an increase in exports and imports from these countries.

References

Bratti, M., De Benedictis, L. and Santoni, G., 2014. On the pro-trade effects of immigrants. Review of World Economics, 150(3), pp.557-594.

Clemens, M.A., Özden, Ç. and Rapoport, H., 2014. Migration and development research is moving far beyond remittances. World Development, 64, pp.121-124.

David, H., Dorn, D. and Hanson, G.H., 2013. The China syndrome: Local labor market effects of import competition in the United States. American Economic Review, 103(6), pp.2121-68.

Fidrmuc, J., Korhonen, I. and Bátorová, I., 2013. China in the world economy: Dynamic correlation analysis of business cycles. CESifo Economic Studies, 59(2), pp.392-411.

Guo, S., 2016. From international migration to transnational diaspora: Theorizing “double diaspora” from the experience of Chinese Canadians in Beijing. Journal of International Migration and Integration, 17(1), pp.153-171.

Hao, L., Houser, D., Mao, L. and Villeval, M.C., 2016. Migrations, risks, and uncertainty: A field experiment in China. Journal of Economic Behavior & Organization, 131, pp.126-140.

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Kugler, M., Levintal, O. and Rapoport, H., 2018. Migration and cross-border financial flows. The World Bank Economic Review, 32(1), pp.148-162.

Kwei, E.S., 2013. Chinese trade bilateralism: politics still in command. In Bilateral trade agreements in the Asia-Pacific (pp. 133-155). Routledge.

Lee, G.T. 2016, Three essays on international trade: Analyses of vertical specialization, Free Trade Agreement and international quality competition, University of Virginia.

Lin, E., 2014. “Big fish in a small pond”: Chinese migrant shopkeepers in South Africa. International Migration Review, 48(1), pp.181-215.

Nolan, P., 2014. Globalisation and Industrial Policy: The Case of C hina. The World Economy, 37(6), pp.747-764.

Ortega, F. and Peri, G., 2014. Openness and income: The roles of trade and migration. Journal of international Economics, 92(2), pp.231-251.

Pop, I.I., 2016. Strengths and challenges of China’s “One belt, One road” Initiative. Centre for Geopolitics and Security in Realism Studies.

Rapoport, H., 2016. Migration and globalization: what’s in it for developing countries?. International Journal of Manpower.

Rasoulinezhad, E., 2017. China’s foreign trade policy with OPEC member countries. Journal of Chinese Economic and Foreign Trade Studies.

Stojanov, D., 2013. QUO VADIS GLOBAL ECONOMY?(TITANIC (THE WORLD ECONOMY) SAILS ALL OVER THE WORLD OCEANS WITHOUT A CAPTAIN). Economic and Social Development: Book of Proceedings, p.814.

Yu, M., 2015. Processing trade, tariff reductions and firm productivity: evidence from Chinese firms. The Economic Journal, 125(585), pp.943-988.

Yu, M., 2018. China’s international trade development and opening-up policy design over the past four decades. China Economic Journal, 11(3), pp.301-318.


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