Impact Of the Chinese Economy To The United States

I know you guys are professionals and have your own policies to review the paper. However, as long as this is my paper, I do have few concerns that I wish you guys would consider and follow.

• This paper is about The Impact of Chinese Labor Market to the United States Labor Market. This paper is not about The Impact of Chinese Economy as a whole.  Therefore, I think I have enough info about the Chinese Labor Market; however, I only provide the US Labor Market with only vague and little information. Please have a further research and shorten The Rise of China and The Economic issues in China sections in body part.
• Please make each sentence clear and concise. I need to make each paragraph coherent and straight forward that please edit and remove my wordy sentences.
• If you guys research and have any graphs or data to include than please do so. I have only few graphs.
• Using Econometrics methods to compare US wages of before and after the trade with China section in body part, I wrote down the instructions, and what econometrics methods to use in order to compare the wage differences. I tried to do by myself but failed. This is the most important section and why I decided to ask you guys for reviewing my paper.
• Not the least but the most importantly, this paper is zero tolerance for the plagiarism. I have to turn this paper through the electronic device. If you guys have any device that checks plagiarism, please do so and edit those sentences.
• I also sent Instruction for Paper, so Please read it

Sanghoon Chang

Prof. Steffen Habermalz

Labor Economics

2007-02-28

Impact of the Chinese Labor Market to the United States Labor Market

            China is gaining  market share among the developed economies of the world. This paper discusses how China’s economy has grown to be one of the important economies in the world. The paper will also cover the growth trend in China’s economy,. some of the issues and problems that China must deal with in order to pave the way to economic success;among the difficulties faced by China is the transition to capitalism from a command economy..  Additionally this paper will also touch upon the impact of China’s development on the economy of the United States and the strategies  China has employed to foster growth. Finally, it presents some predictions for continued growth of China’s economy.

The Rise of China

China has become one of the world’s leading nations in terms of political economy .According to a paper  the growth of China’s GDP had reached 9.1% by 2003 and its trade surpluses exceeded $850 billion USD (Yunling )  The economic boom in  China started booming since the commencement of its open market policies in 1978 and the beginning of efficient government reform. Since then, Chinese  imports have consistently increased.. According to statistics, the average growth rate of Chinese GDP reached as high as 9.4% from 1979-2002. During the first half of 1990s,  the Chinese economy experienced runaway growth or  “overheating”; the growth rate reached a very rapid 12%.

 The Chinese Government implemented policies to slow growth successfully and reduced the growth rate to 7.6% during the second half of the decade. (World Bank 15)  The growth rates were further slowed to about 7% after the 1997 Asian financial crisis. Since 2000 the growth rate has begun to accelerate again,  reaching 9.1% in 2003. Today, China is the  fifth world largest economy in terms of GDP and has become a middle-income country interms of  GDP per capita  (exceeding 1000 US dollars in 2003). (Yunling.)

Economic Issues in China

China has faced and overcome several major issues before achieving its current economic success.   One of these issues was the effect that unrestrained  capitalism can widen the gap between the rich and the poor..  Unregulated , capitalism could result in monstrous monopolies in the macro-scale and could allow unfair exploitation of the poor.   The challenge lay in providing a balance to produce a smooth transition to an open market without allowing businesses to engage in unethical behavior.  Success allows the inherent efficiency of capitalism to operate without distortion caused by powerhungry individuals or over-regulation by the government. This issue posed a serious challenge to the Chinese  leadership. Because of the Socialist background of the country the government official had long possessed complete control over economic resources.

.

“The economic growth of China was mainly based on export policies and on a great inflow of Foreign Direct Investment. The issue being faced by the country therefore is that has “China taken away the market from the others and dried up the pool of FDI flow?”(Kwan 8)

As stated by C.H. Kwan, the struggle between China and East Asian economies on the US market intensify astonishingly during 1990s, the enmity proportion between China and Indonesia as high as 82.8%, Thailand 65.4%, Malaysia 48.7%, The Philippines 46.1%, S. Korea 37.5%, and Japan even 16.3% in value terms in 2000(8). Nevertheless, it must be vigilant to examine the statistics regarding “product comparison” given that they might be extensively distinctive in each product type and degree plus condition of the products.

In order that, whenever weighed against the export widening of China, and that of other developing economies in East Asian nations, the tradeoff results between them is not actually existent, (Kathic Krumm And Homi Kharas, East Asia Integrates- A trade policy agenda for shared growth, World Bank, 2003 p5.) where this also means that there is no tradeoff result or consequence to some particular products at all. In consequence, China is also in countenance with competition from other developing economies in the low labor cost products and the singled out agreement in the textile quarto in the textile exports.

China’s Labor Market

The economic growth strategy employed by China was to exploit the low labor cost allowing Chinese exports to have a comparitive advantage in manufactured goods. This policy has allowed the country to gain its current economic status. Therefore, it is important to analyze the recent history and current structure of the emerging labor market in China.

Research has shown that the wages of skilled Chinese workers will increase rapidly and the difference between skilled labor wages in the rest of the industrialized world and China will become slight in the next few years. However, the comparative advantage China currently enjoys in the cost of semi-skilled and unskilled labor will continue for an unidentified period of time.

The economic growth of China as compared to the growth of the global economy has been remarkable, even considering the recognized imperfection in its gross domestic product (GDP) data. The country only began to lift the burdens of communist economic control in 1978 by initiating experiments with private ownership and open markets.

The United States has shown great interest in the growing importance of China. In particular the balance of trade picture. Trade with China has accounted for an increasing share of total U.S. imports and exports of goods and services. The speedily increasing bilateral trade surplus between China and the United States nearly reached a total of $124 billion in 2003 (Waldman).

Two factors are responsible for the remarkable growth and performance of the Chinese economy, and transforming the economy into a magnet for Foreign Direct Investment (FDI). First, the population of China having 1.3 billion citizens and with the ongoing economic reforms have produced an enourmous potential consumer market. The second factor is the labor cost in China is a mere fraction of labor costs in other  industrialized nations like the United States.   The average annual wage more than doubled in the period from 1993 and 200, yet the wage earned stood at just under $1400 USD in 2001 (Waldman).  This low cost combined with a very high Labor Force Participation Rate (Li 3) translates into an enourmous labor resource available to produce goods and services for the consumer market.

Labor Market Issues in China

As the Chinese economy grows and develops pressure for increase of wages, family size and family income develops. As a concrete example, a family with more members will earn a greater family income, thus more individuals especially women could withdraw from labor market. In practice ,however,  increased in wages tend to attract many individuals to work. Furthermore, the one-child policy of the nation and labor-saving technological progress in the household enables individuals, especially women, to engage in employment with flexibility of schedule.

It is a given fact that the labor market of China is currently moving to a market mechanism. The private sector in the country is growing rapidly and employment in state owned sectors are declining. Many people are now finding employment in non-government channels. More people are working on a second job and even seek employment after retirement from a previous job.

The process of layoffs has been increasing in state owned enterprises. This is an effect of the transition period of China’s growing economy. It is recognized that state owned companies still employ more than half of all urban workers. However, the government is still involved in job assignments, wage structures, and lay offs.The labor market is still dependent on government increase in wages and government subsidies. This welfare net is shrinking as state owned companies are the initiate lay offs.  The table below shows the actual data for employment in the  private and government sectors.

Moreover, economic research has shown that substantial changes are necessary to reform state owned corporations. The employees in such corporations work fewer hours at less intense tasks, yet their compensation is higher than similar jobs in the private sector. This issue must be resolved so that the labor market better reflect  supply and demand.

Currently the corporations that pay the highest regular wages receive the least subsidy from the government. This is a clear pattern in Chinese labor market which is “the higher the level of the public ownership, the lower the degree of the market mechanism.” Even though the private sector in China is relatively small, reforms must be made to increase the labor market share of the private economy. Lastly, the Labor Market of China is faced with a problem of absorbing the surplus labor into quality jobs while in transition to World Trade Organization standards.

There have been many improvements and developments in labor market of China, however, problems still remain. It is apparent that the reforms in the labor market will eventually be associated with other economic reforms resulting to an interrelated success of such reforms. Yet the greatest issue that China faces is moving toward a completely private labor market, just like other economic areas, there is still a great deal of state control in the labor market.

Recommendations for the Labor Market of China

Since China has now become a market oriented country, she needs to address the issues faced by her labor market. Economic issues in the labor market of the country can be resolved through government policies that encourage job growth in private sectors. In fact this has been one of the main sources of job growth in the recent years, by reducing barriers to migration, developing worker skills, facilitate job searches, and strengthening the social safety net (Brooks).

According to Brooks and Ran, labor mobility could encourage job growth, thus causing a decrease in internal migration. This reform is necessary to address the gap between urban and rural incomes.

Labor Economic Strategies of China and the United States

 The main strategy of China is to utilize the cheap labor cost compared to the United States. Due to this cheaper labor cost, China produces goods with a lesser cost than the United States. Because of this that China was able to gain a huge market share of the world economy. The table and graph below indicate  the status of U.S. trade deficits in goods through 2004, and the deficit specifically with China.  This gives a good picture of the growth of Chinese trading power in the world market.

The United States is losing her market share because her homeland  industries are failing to meet the internal and external demand for products. To discuss this further, the United States imports more than she exports. This situation on  the balance sheet is not at all favorable to the United States economy. This is due to the economic principle that imports are purchased and disbursement of funds oriented while  exports are income generating. Consequentially, the United States in danger of losing political favors from the countries that desire good relations with China.

The United States is predicting that they will lose the grip of political power due to China’s good relations with other nations like Russia, Iran which are among the biggest threats to United States political economy as these countries are the anti block of the United States. The issues being faced by the United States can be said to be based on the economic principle in business, the only goal of any organization is to create and maintain a sustainable competitive advantage over its rivals. In this particular scenario, China is gaining over time compared to the United States.

Another strategy employed by China is the regionalism principle. This principle helped greatly in establishing good relations between China and other Asian countries. Thess good relations enabled China to increase her imports and using it as a step towards joining international trade organizations. Becoming a member of the World Trade Organization also helped China greatly to increase her imports. It is a good strategy to develop good political relations as a foundation for future economic success.

Using Econometrics methods to compare US wages of before and after the trade with China

           

The trade with China is one factor of the problem causes in recent US labor market because it causes large trade deficits to US.

China Leaves Lessons for Developing Countries

The strategies employed by China in making her way to economic success could serve as a guide for other countries to follow. At present, the main issue of the world is to find the best way to maximize the efficiency and productivity of the labor force.  Human resources can only be maximized by motivation. China was successful in maximizing her human labor force. The factors of production in an economy are land, labor, and capital (physical, and human). All of these factors of production are managable by man, thus China was able to utilize these factors by investing much in her work force, the human capital. The streamlining of these work forces is the key ingredient to the recipe of China’s economic success.

On the other hand, every nation must take into consideration the cultures and problems that the country is having. It is important first to identify the main problems of the nation.Once identified, a nation can make policy directly addressing those central issues. It is also helpful to develop good trade agreements with other nations as China had done.

Every country has some comparative advantage over other countries. This means that some countries can produce a specific product at a lower cost when compared to other countries. Now on this note, a country may establish a trade agreement with countries having products of a cheaper cost with their own products of the same cheap cost, basically an export trade agreement.

Most of these policies were observed as China’s economy grew. Agrarian reforms and lower taxes on farmers  helped to reduce poverty in China. Macroeconomic stabilityachieved with policies that avoided producing inflationary shocks were also effective in reducing poverty (Ravillion).

 

Prediction of China’s Economy

Looking into the present scenario of the world economy besides Domestic economy of China, the country is gaining a large parcel of the market share of the world with rapid speed due to its comparative advantage over her rival economies. China is making agreements with other countries in the form of political and economical ties. Therefore, future prospects of the China’s economy are a clear future ahead. It is predicted that China will continue to gain more market share in the future.

Conclusion

Debates on the relationship of the United States and China continue arrive at predictions based upon opinions on the political tendencies of the United States and the economic potential of China. Some believe that the two nations would never be in agreement because the United States would curtail economic growth in China. There are also opinions that see a good hand-in-hand, working political and economic relationship forming between the two nations which would eventually lead to one world economy at the peak of globalization.

 

Reference:

 Brooks, Ray and Tao Ran. “China’s Labor Market Performances and Challenges.” China and World Economy/21-35, Vol. 12, No. 1, 2004: 34-35

Kwan, C. H. “Overcoming Japan’s ‘China Syndrome’”, paper presented at the Conference “Asian Economic Integration”, RIETI, April 22, 2002: 8

Li, Haizheng and Jeffrey Zax. Economic Transition and the Labor Market in China. Labor Force Participation Rates. page 3

Waldman, Cliff. “The labor market in post-reform China: history, evidence, and implications; China’s labor cost advantages are shifting but will remain formidable.” Business Economics, Oct, 2004. Find Articles.com. February 27, 2007. <http://www.findarticles.com/p/articles/mi_m1094/is_4_39/ai_n9483917>

Yunling, Zhang. “China’s Economic Emergence and Its Impact”. 1994 Institute of Asia-Pacific Studies. March 2,2007. <http://iaps.cass.cn/XueShuWZ/showcontent.asp?id=397>

World Bank: China country economic memorandum: promoting growth with equity, 2003,        Washington            DC, p.15

Ravillion, Martin and Shaohua Chen.  “Fighting Poverty: Findings and Lessons from China’s Success.” 2007. The World Bank Organization. Mar 9, 2007. <http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:20634060~pagePK:64165401~piPK:64165026~theSitePK:469382,00.html>

Economic relationship between China and the United States            http://www.cbo.gov/ftpdocs/62xx/doc6274/04-14-ChinaTestimony.pdf

Chinese labor market performance and challenges            http://www.imf.org/external/pubs/ft/wp/2003/wp03210.pdf

Economic transition and the labor market in China  http://www.prism.gatech.edu/’hl45/research/lbmkt.pdf

Chinese Economic reform and labor market efficiency            http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN02353 pdf