The Peoples Republic Of China Economics Essay
The Peoples Republic of China (PRC) is the world’s largest and most populous country with a population of 1.4 billion in 2010. Today China accounts for the second largest Gross Domestic Product (GDP) of US$$4.99 trillion, however, its per capita income of US$3,700 is relatively low compared to other countries (Britannica). This is due to the high volume of investments in the manufacturing industry by foreign and local companies. The manufacturing industry stands 49% of the total economy in 2009(World Bank) and the bulk of the manufacturing industries are located at the Coastal Cities of China. This essay seeks to discuss the factors promoting the rise of manufacturing industries at coastal cities in China and its role of being the key suppliers of employment in coastal cities over the past thirty years. The essay will touch on the factors promoting the increase in manufacturing industries in the Coastal Cities. The factor encompasses the Economic Reform, Site Factors and Natural resources, Rural Population, Wage Structure and Land Cost, and analyse how these factors contribute to the employment of the locals in China.
Economic Reform
Before the late 1970s China employed the Closed-door policies management, where private business and capitalism does not exist and is solely planned and managed by the government. The National Party Congress’s 11th Central Committee saw the need for an economic reform to keep up with the growing economic power of other developing countries. In this section we will look at how China’s government policies and initiatives to promote the growth of manufacturing industries mainly focusing on the rise of the Coastal Cities.
The central government of China founded the Special Economic Zone in conjunction with the economic reform initiation and the open door policy to attract foreign investments and collaboration. The Special Economic Zone (SEZ) encompasses Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports etc. These zones were setup by the government mainly in the coastal areas which then developed to be the Coastal Cities of China. There are fourteen coastal cities opened in 1984; Shanghai, Qingdao, Tianjin, Dalian, Yantai, Ningbo, Fu Zhou, Guang Zhou, Zhanjiang, Qinghuang dao, Lianyang ang, Nantong, Wenzhou, Beihai. Special economic policies are granted to these coastal cities to promote foreign investors to base their manufacturing industry in China by giving tax incentives. The tax incentives includes no tax during start up years before profit is made, subsequent two years after profit is made the tax is waved, followed by half tax on the third and fourth year and finally full tax in the fifth year of profit making. Foreign companies could also have the autonomy in managing the industry and the government also minimizes bureaucratic control and waved tax on imported raw materials. For foreign companies that need capital for startup could also apply for soft loans from the government. From these government policies many foreign investors were attracted to the incentives and benefits that the Chinese government is offering and an influx of foreign investors started to enter China in the early 1980s. The total foreign investments in the industries at the coastal cities amount up to nearly 90% of the total foreign investments (Tatsuyuki OTA).
Site Factors and Natural resources
The coastal cities have also favorable geographical features and resources for the manufacturing industry. Raw materials are rich in parts of the coastal cities like Tianjin has large deposits of petroleum, manganese, boron. Other coastal cities have large amounts of coal, iron, tin, etc. The raw materials are an attractive feature for manufacturing industries, they will be able to tap on the available natural resources or process these resources for export. Due to the proximity of the industry to the natural resources, a lot of internal transport cost can be reduced, thus making the export product cheaper, making it more competitive in the market and maximizing profits. The Chinese government also provides better infrastructures for investors to move their company in so that they can start their production without having to spend extra time or money to renovate the factory for operations.(more info) To facilitate the export or import of products and materials, large deep ports are needed.
Most of the coastal cities have favorable ports like Shanghai, Dalian, Tianjin, etc, for large shipping containers transporting coal, crude oil, automobiles and other manufactured products. This favors the import and export of products and saves cost, as the distance from the manufacturing industry is not very far away from the port. Furthermore, the coastal cities are free port cities, making the coastal cities in China very attractive to foreign investors. With these free trade zones in China, foreign investors holds 60% of China’s total import and exports (Tatsuyuki OTA). With the rapid increase in the manufacturing industry of 510,000 industrial enterprise in 1993, a large pool of cheap labour is needed due to the nature of the manufacturing industry. We will look at the how the rural population contributed to the labour force in these manufacturing industries from the rise of the manufacturing industries from the early 1980s.
Rural population
Rural population of China in the late 1970s was 80% of the whole population in China, this figure dropped tremendously over the next 30 years to 56% in 2009(World Bank). This phenomenon is largely due to the internal migration of rural population to urban areas for better job opportunities and better wage level compared to of those in the rural areas in China. The development of the coastal cities in China has led to the rise in the number of manufacturing industries being setup. The industries mainly focus on manufacturing and processing iron, steel, coal, petroleum, textiles, automobiles, etc. These industries need a high volume of low to medium skilled labours, thus surplus amount of rural population can be tapped by the manufacturing industries. These industries employ the bulk of those who came from rural areas in search of jobs as factory workers (Britannica). A total of 109 million employees are officially recorded in the manufacturing industries in the year 2002 of which more than 50% were from rural areas (Judith Banister, 2005). With high amount of surplus labour, China is also known for its low wage labour structure. We will look into the labour wage structure of China since the start of the economic reform.
Wage Structure and land cost
The surplus labour force in the rural areas is estimated to about 100-200 million (Judith Banister, 2005). Thus manufacturing have access to this pool of “unlimited” cheap labour, due to the need of high workforce and low paying wages, China is an ideal place for manufacturing industry. An average employee’ salary per month in the year 2002 is about S$148 which amounts to S$1780 a year. This low wage structure from the start of the economic reform till the early 2000 is mainly due to the government’s control of the economy. To be attractive for the manufacturing industry the Chinese government controlled the standard of living of China, to prevent it from growing too rapidly, thus this explains the low wages of the citizens. China charges manufacturing investors very little for land and energy consumption, thus lowering the production cost for the manufacturing industries, this in turns makes the products very competitive in the global market.
