Introduction
Regarding globalization, China’s significance and possible impacts have been a concern since its economy has grown substantially, thus making its status rise in the international trade avenues. China is prominent in the global economic system because of technological advancements, industrial capacities and abilities, and a population of approximately 1.4 billion people. Some globalization drivers have enhanced China’s growth and laced this nation into an advantageous position in international trade. On a global scale, consumers and businesses have managed to get more opportunities, lower costs, and high levels of competition because of these globalization drivers. There are possibilities of China taking the main stage in the world by becoming the largest economy with the continued economic growth of China. Therefore, as a result, such growth and change might affect the world trading system, the world monetary system, the business strategy of today’s US-based global corporations and their European counterparts, and global commodity prices. Therefore this paper will evaluate the possible implications of such development in these four areas.
Major Drivers Of Globalization And How They Seem To Be Thrusting Major Nation-States Toward A More Tightly Integrated Global Economy
Globalization’s first driver is technological advancement, whereby people and businesses have found it easier to share ideas and communicate, irrespective of their geographical locations. Numerous worldwide aftereffects resulted from China’s economy’s explosive rise (Costin, 2008). Such improvements include communication and transport equipment, and the usage and introduction of the internet and social media platforms have made lives stress-free in the business world, thus making it easier for significant nation-states to have a significantly integrated global economy.
The migration of labor is another critical driver whereby there has been a surge in the migration of people and skilled personnel from one nation to another as they strive to get employment in host countries. Thus, these significant nation-states eventually have a significantly integrated global economy since they can source employees from any part of the world without the hassle and work efficiently with these employees without geographical limitations.
The last driver is the presence of executed government policies. Globalization is therefore enhanced and promoted by these policies, including policies that promote investment in these nations or tax incentives policies. Thus if the governments of these major nation-states have policies that promote investment in these nations, they can increase foreign investment in these nations as the investors will find these policies fair and somehow friendly to them. China has proven effective in using policies to entice FDI from outside (Yueh, 2013). Therefore, these major nation-states will have a properly integrated global economy.
Possible Implications On The World Trading System
By becoming one of the largest economies in the world, China can affect the negotiations of international trade, which thus may make other countries strive and engage in agreeing to the terms of this nation so that they may also benefit from the economic benefits that trading with China brings. Its rapidly increasing trading share supports China’s position as a growing economic power (Lardy, 2003). Thus if these countries abide by the trade terms created by China, they might retain trading opportunities with China. Therefore with China being among the nations with a large economy, it has a negotiating advantage, which might make these other nations agree to the trade terms created by China even if they may not be fair to them. Likewise, such is also boosted by the large population of China and the increase in the affluence of its citizens, who are also consumers. Over the past few years, such negotiations with China have gotten a good spotlight from other nations and international bodies.
A good example is a deal between China and the European Union in 2018, whereby both parties agreed to enlarge access to the market to benefit both parties. Therefore through such a deal, sectors like healthcare, food, and renewable energy could be accessed by the European Union as a result of this twenty billion dollars deal. European investment could also get easy access to the Chinese market, which was also a provision in such an agreement. Trading alongside the countries around it might benefit both parties (Abeysinghe & Ding, 2003). In such a case, the European Union is aware of the potential of China and decided to tap into such potential in the early stages before China managed to be among the largest economies in the world. This status might make negotiating with China on such trade deals hard.
Another good example is the trade deal between China and the United States, whereby the latter has, in the past few years, engaged in aggressive trade agreements with China whereby a good number of the major products being sold by China have been incorporated with tariffs by the United States. Thus the United States can benefit from these tariffs and still have control, whereby both nations reap benefits. China has a significant influence on world commerce (Ikenberry, 2008). Such an agreement is based on China’s threats to the United States regarding its fast-growing economy. China is almost taking over manufacturing and technological sectors from the United States. Thus from these two examples, it might be evident that even though these trade negotiations have taken place before China becomes one of the largest economies in the world, it has already started shaking other major players in the market and shifting patterns in international trade negotiations. Also, the second example indicates how the power of the United States has drastically reduced in the trade negotiations with China.
A second possible implication of China’s dominance in the world economy might be the change in international trade operations. Such might occur through new currency emergence in the global market whereby the yuan might have to be used by other nations to complete their transactions. Yuan appreciation would inevitably increase export pricing for Chinese commodities (Costin, 2008). Such is a possibility since, at the moment, there are talks between countries like India, China, Russia, and South Africa whereby these nations wish to abandon the use of the U.S. dollar in conducting trade and instead use their currencies. These countries are among those with the most economic impact on international trade. Thus, when such happens, China can displace the use of the dollar by nations as the main currency in international trade.
Additionally, there might be some political shift in international trade when China becomes one of the largest economies. With such a size, more political influence may be amassed by China, enabling this nation to have better negotiations and international dispute resolution since it might have more power to get assistance from the United Nations. Thus global power and influence might shift from nations like the United States to China in these circumstances.
Possible Implications On The World Monetary System
By becoming one of the largest economies in the world through globalization, China can affect the monetary system in various ways. One of these ways is the change in trade currencies in the international market since China has managed to use its money, i.e., yuan, when transacting with other nations in international trade. Even though the yuan has yet to manage to get the embrace received by the U.S. dollar in conducting international transactions by countries, it is gaining more popularity currently and thus might take over from the dollar very soon, thus making it the reserve currency of the world. The majority of exported products in several Latin American nations are specifically impacted by the economic growth of China (Yueh, 2013). Also, the international financial system may change due to the dominance of China’s economy worldwide. Such is because there has been more significance of the various Chinese financial institutions in the global market, which are also very large. China’s significant financial endeavors, which potentially compete with U.S. global organizations, have begun with establishing the Asian Infrastructure Investment Bank (Kim, 2019). The possible increased importance of these financial institutions may be because of the use of the Chinese currency in international trade once its economy becomes one of the biggest in the world.
Thus these institutions can aid various nations in international trade by helping them mitigate the various importing risks through different financial products. Such risks are possible since these nations and China might have wider geographical distances. At that time, China might have amassed more extraordinary negotiating powers; thus, it might be challenging for these nations to get trade deals with China. Therefore these major financial institutions in China might assist by becoming intermediaries between these nations and China and offering finance products of specialized trade which can work well for China and these nations. Thus these nations might receive documentary collections and letters of credit, which may thus help them mitigate the risks of importing and exporting products in a global market where China is the major economic player. Accordingly, the international financial system may change when China becomes a major global economy.
Furthermore, it might affect the international debt market when China becomes a major global economy. China is a sizable and responsible international creditor (Cable & Ferdinand, 1994). Such is because a significant increase in the size of the Chinese economy to this main level might mean that this nation may obtain more debt to sustain its economy. Therefore China might join the list of countries with the most extraordinary amounts of international debts, which may also mean that this nation might have increased influence in the global financial markets. Consequently, the international financial market’s stability could be affected by the Chinese debt if it becomes more prominent and manifests the existence of opportunities for investment, slower rates of growth, and increased interest rates.
Possible Implications On TheBusiness Strategy Of Today’s US-Based Global Corporations And Their European Counterparts
When China becomes a large world economy, it will expand the global market by providing opportunities and space where nations can buy and sell goods, including European and United States-based global corporations. Therefore the companies which have invested in the various sectors of the worldwide market, like services, technology, consumer goods, and manufacturing, will reap many benefits from the expanded market. China’s booming economy offers significant commercial prospects to Western countries (Cable & Ferdinand, 1994). Also, there will be a surge in competition between the local Chinese companies and the various European and United States-based global corporations working in China. The capacities of these local companies will have increased in direct proportions to that of China’s economy. Thus, they will threaten these European and United States-based global corporations, which will target China as a place for investing and market share.
Additionally, when China becomes a large world economy, it would mean that there will be new cultures in the international economy. Considering its magnitude, China’s reappearance in the world market has inevitably significantly influenced the expansion (Yueh, 2013). Therefore, these European and United States-based global corporations would have to make various amendments to their business strategies to integrate the new political and cultural changes brought by China. These European and United States-based global corporations must make business strategy amendments to adapt to the changes in the global economy quickly. Thus these European and United States-based global corporations might have to source for experts from China who have a deeper understanding of the various regulations and practices of business in China and would thus enlighten them on ways of conducting proper business with Chinese companies and corporations.
Lastly, as they work in China, European, and United States-based global corporations might face challenges like technology transfer, including intellectual theft. Such is a challenge since China has indigenous languages, which the European and United States-based global corporations might need help understanding. Thus Chinese locals with proper knowledge of intellectual theft may take advantage of these corporations. The result may be that these corporations lower profits and lose their competitive edge in the market.
Possible Implications On The Global Commodity Prices
When China becomes a large world economy, it might change the prices of commodities internationally since it is one of the biggest importers of various products. China is among the most prominent international consumers of essential commodities like oil and metals (Costin, 2008). These products include metals, gas, and oils, among others. Therefore, with the increase in the Chinese economy to such s significant level, any changes in the demand for these commodities by China would result in a substantial decrease or increase in these commodities in the global market. Commodities’ pricing sensitivity to the China impact has proven severe (Yueh, 2013). Demand increases often increase the prices of products and services, while a demand reduction usually lowers the product or service prices. On the same note, there may be an increase in competition by various nations to access, buy and sell resources like minerals, gas, and oil. The oil prices experienced a sharp increase in 2005, and at the beginning of 2008, they crossed the significant hundred dollars each barrels mark (Costin, 2008). Therefore the prices of these commodities may significantly increase because of the demand for these resources.
Moreover, with China becoming a significant world economy, it might change its consumption patterns since it might need more products of higher quality in the global market. A lot of detrimental effects on China’s economy have been caused by the widening wealth disparity (Zhao, 2017). Therefore the prices of these products might increase based on the new demand brought by China. Also, with such a status, the status of China in the international market will change as it will be a primary buyer.
References
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