Outside Influence on China’s Economy

Published on Author kavanaght16

While China has traditionally been an isolated nation, in the past half century that has changed drastically. Originally, this opened many markets for Chinese goods and fostered rapid growth of the Chinese economy. However, this has also increase the level of outside influence in China. This new outside influence has ramped up an economic down turn in China. International investors has begun loosing confidence in China, decreasing the amount of foreign investment. These investors are using other slowing emerging economies, such as Argentina and Turkey, as reasons for pulling investment. Internally, investors are concerned with a decline in foreign exports as well as increased rates of inflation. They believe this forecasts a weakening China.

The action of foreign investors as well as internal factors have forced the Chinese government to react in a number of ways. Primarily, the central bank has been removing liquidity in the economy in a hopes of discouraging investment and encourage consumption. The government hopes this would increase GDP and restore confidence in China. Economists worry that if these measures are not successful there could be a wide spread economic crisis within China.

Further Reading: http://blogs.wsj.com/economics/2014/02/09/early-look-a-shaky-economic-start/

2 Responses to Outside Influence on China’s Economy

  1. It is true that as China opened its economy, the economy became dependent on foreign factors. There is no doubt that if investors begin to pull out their investment, China’s economy will get hurt. However, I do not think this will lead to a huge crisis yet. China’s economy is big and is still growing. As it grows, it will likely to attract more investors. If, like this post suggests, investors stop investing, then the central government will react in a number of ways to prevent that to keep happening. However, as I mentioned in the previous posts, the problem of debt can lead to a crisis. Debt, together with low investment, can lead to a serious economic crisis.

  2. “Traditionally” isolated? What of the Qing conquest of China, the Opium War, and all the trade ties to that? Soviet foreign aid in the 1950s? And on the trade side there’s export porcelain, opium, silk, and other goods. This ignores domestic trade – remember that what would be international trade in Europe (or the US before the 20th century) would due to sheer size be domestic inside China. If you go back, you will find comparative advantage specialization on a regional basis.
    And do you have any evidence that (i) international investors are significant, much less (ii) fleeing? How could GM possibly flee China, which is its largest market? Even if GM CEO Mary Barra were unhappy (she’s not!), the factories and domestic workers and managers and supply networks would remain. To flee would be nothing more than a swap of pieces of paper, not a change in “real” economic activity. Just because we read (primarily) US-based media and hence read a lot about US-tied firms doesn’t mean that such firms are a large part of the Chinese economy!