What Will Happen If the Chinese Bubble Bursts?

Topics: People's Republic of China, Communism, Republic of China Pages: 6 (2172 words) Published: January 15, 2013
The purport of this work is to reveal the influence of eventual failure of the Chinese market on the world’s economy from a globalist’s point of view. China, as a growing world power, has a significant impact on the global economy. An eventual downturn of its market will lead to dramatic consequences for the economy on national and world-wide level. As the country with the highest IT goods export rate, its failure will lead the global community to a larger poverty gap, less investment, less technology: a stagnant economy. Due to its mixture of cheap labour, low living standard, undervalued currency, China has become a remarkable economic engine. Chinese economy cannot easily collapse on the input supple side, as millions of people join the labour force each year. Moreover, the country’s sizeable territory ensures a constant stream of resources. On the other hand, the Achilles' heel, of the eastern country and the activities that might crack are the FDI and export of goods. About 2/3 of China’s exports are produced by foreign-invested companies. China is extremely dependent on the FDI, because there are very few large private firms and overseas investments. Firms consist of 14 to 25 employees on average. If a crisis occurs, “China’s economic weight would become a liability. The IMF estimates that the impact of Chinese demand on the world’s largest economies has more than doubled over the past decade”1. But the Chinese model has its limits, and that has far- reaching consequences for the U.S. and Europe, both of which are increasingly dependent on China. So far the Asian country has the biggest IT export share world-wide, Earth’s third largest trader, second largest economy in PP GDP. Therefore, a would-be failure of their market will affect the global economy in a dramatic way. What would be the exact consequences from this downfall, we are going to evaluate using the PEST model in the following paragraphs. Political aspect – On the political stage everything is changing with a significant pace. An eventual failure of the Chinese market will weaken their position about what is happening in the Middle East. Iran is surrounded by American troops and China and Russia are against eventual inburst into the Muslim country. If the Americans take control of Iran this means that they will have direct ascendancy over the distribution of petrol. Due to their military camps all over the Middle East they are able to carry out this control for an unknown period. Their only opposition are China, which will be in really delicate situation during a potential recession, and Russia, which cannot oppose efficiently on its own to the power of the U.S.A. Furthermore, the American and the Chinese economies depend so much on each other, as the Asians use the advanced technology developed and funded by the Western countries and the U.S.A use the cheap labour in the Asian country and outsource its production there. In addition, China has over a trillion of U.S. dollars in foreign reserves. This in turn, forms a very complex vicious circle for the ruling economic elite world-wide. Owing to that fact, the economic elite is exactly what makes the globalisation work. China’s leaders know that they should maintain the growth rate of the country, in order to remain politically stable and to uphold their FDI constant or even growing. “Latecomers imitate the practices and adopt the institution of the countries who have shown the way”2. So the following outcome of a Chinese economical failure could be sought in the historical development of another communistic regime like Russia. Communism was a system not truly practiced in the former USSR. Contributing factors were extreme political corruption, extensive competition with America which involved western sabotage of Socialist interests throughout the world, and Moscow's inability to accurately predict supply and demand. These elements are more or less also concerned in the current state of the Asian...

Bibliography: 1 - http://www.bloomberg.com/news/2011-10-04/china-s-fall-not-its-rise-is-the-real-threat-to-the-global-economy-view.html
2 - Waltz, Kenneth. Globalization and Governance. PS: Political Science and Politics, Vol. 32, No.4, (Dec. 1999), 694
3 - JOHN LEE; Director of Foreign Policy, Centre for Independent Studies, Visiting Fellow, Hudson Institute
4 - CATHERINE L. MANN Barbara ’54 and Richard M. Rosenberg Professor of Global Finance, Brandeis International Business School, Brandeis University
5 - http://www.economist.com/node/21548943
6 - RICHARD JERRAM Head of Asian Economics, Macquarie Capital Securities
7 - http://www.gordonchang.com/qanda.htm
8 - http://mises.org/journals/qjae/pdf/qjae10_2_5.pdf
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Chinese Property Bubble Burst Essay
  • Bubbles Essay
  • Next Asset Bubble Burst Essay
  • Chinese Real Estate Bubble Essay
  • The Chinese Bubble Essay
  • Essay about What Happens at the Annual Appraisal
  • What Happen to Coca-Cola Essay
  • What Happens to a Dream Deferred Essay

Become a StudyMode Member

Sign Up - It's Free
Findet Dorie | 11.22.63 | ACDC - No Bull.