Countries with a high pace of economic development have continuously attracted a significant amount of attention from academics, business practitioners and policy-makers. This interest can be traced to a number of opportunities that stem from the level of economic development in both academic and business terms. Over the recent decades, the level of Chinaʼs economic development has surpassed any other economy in the world. Moreover, given the size of the country and its international role, the rise of China is widely acknowledged as the most important aspect of the 21st century in global economy (Kristof, 1993; Callahan, 2005).
Despite the growing interest of the academics, the existing body of literature on the rise of China is highly fragmented and often contradictory in nature. The general consensus acknowledges the importance of this issue and its impact on the global economy, however, a myriad of distinct perspectives and scenarios regarding the particular implications are highlighted in the existing body of literature review. Example can be made of the study conducted by Goodhart and Xu (1996) which pointed out the Chinaʼs ability to overcome a number of economic growth issues, such as loss-making state enterprises, decreasing fiscal revenues and inflation and the contradictory arguments presented by Shambaugh (1994). Moreover, while the rise of China is often portrayed in both academic and popular press as the key issue nowadays, Segal (1998) and consequently Shirk (2007) pointed out the fragile nature of this country which contradicts the notion of the Chinaʼs superior power depicted in the academic debate.
Alternative interpretations regarding the rise of China have emerged and emphasise the hyperbolic nature of the mainstream research (e.g. Callahan, 2005; Bardhan, 2006; Lai, 2010). Bardhan (2006) recognised that structural and institutional problems persisting in China will affect its developmental path. Similar conclusions have been previously drawn by Shambaugh (1994) who suggested that the economic growth cannot be sustained without the underlying social and political changes which have not been introduced in China. The problems in this country have been demonstrated by the outbreaks of public discontent. The model of development pursued by China is thus highly imbalanced in terms of economic and political growth (Lai, 2010). The presented paper builds on the conflicting theories depicted in the existing body of literature on the rise of China and aims to critically examine the underlying issues.
1.1 Aims and Objectives
The presented paper follows a central literature review aim to investigate the underlying causes and impacts of the rise of China. This study relies solely on the use of secondary data, however, the critical approach adopted is expected to meet the following set of interlinked literature review objectives:
Discuss the potential implications of the rise of China
Critically examine both opportunities and threats associated with the rise of China
Provide an overview of the current state of development and the overall patterns of Chinaʼs development
Emphasise the practical difficulties that might hinder the level of growth in the future
1.2 Structure
The presented paper is split into five main sections, each with a very specific focus. Following the introductory section which clarifies the literature review aims, objectives and rationale for this study, an overview of the conducted literature review on the studied topic is provided. The third section builds on the main themes depicted in the existing body of literature and the discussion provided in the second section, and provides a clear rationale for the adopted methodology. The fourth section strictly follows the literature review method outlined in the third section and uses the available data to investigate particular literature review objectives of this study. The fifth and the final section of the presented paper summarises the findings of the conducted literature review as well as from the conducted analysis and draws wider conclusions.
1.3 Rationale
The rise of China has attracted a substantial amount of interest from academics in a number of disciplines, however, despite the increasing amount of literature review on this topic, a number of key issues are still left misunderstood or neglected in the academic debate. Callahan (2005) suggested that the rise of China is highly exaggerated in the existing body of literature review and further pointed out the discrepancies between particular perspectives adopted by the researchers, analysts and policy-makers. Xuetong (2006) further emphasised the lack of a general consensus on the Chinaʼs power status. Given the highly fragmented nature of the existing body of literature review which highlights a number of tensions and imbalances, the rationale for the presented paper can be found in the urgent need to reach a consensus on the role and impact of the rise of China. This process is expected to affect the very structure of the contemporary society and thus, this study aims to enhance the current understanding of the studied phenomenon.
2. Literature Review
This section provides an overview of the existing body of literature review on the rise of China. The section itself is split into four main parts, each dealing with a particular stream of literature review on this phenomenon. To begin with, the first part investigates the Chinaʼs development pattern with reference to the work of Kwan (2002) in which the author compared the traditional flying-geese model and considered leapfrogging scenarios in the context of Chinaʼs development. The second part evaluates the impacts of the rise of China on the business environment with a particular focus on international trade. Other aspects of the economic growth in the country, such as political and legal, are examined in the third part of this section. The fourth and the final part adopts a critical perspective and highlights the current issues that hinder Chinaʼs potential for sustainable economic growth and revolve primarily around the notions of social and political unrest.
2.1 Chinaʼs Development Pattern
In line with the rapid economic development pursued by China in the recent decades, a number of academics and analysts have questioned the traditionally held model of development in the case of China (Kwan, 2002). These voices have suggested that China is no longer following the classical flying-geese model of development and has leapfrogged its development path instead. Kwan (2002) investigated these claims in his report and based his analysis on the data provided by the US imports statistics. Traditionally, China has excelled in labour-intensive industries and this comparative advantage of the country was based mainly on the very low costs of labour. More recently, China managed to develop a very strong IT industry which is generally believed to compete on an international level. The leapfrogging scenarios are mainly based on these assumptions, however, as concluded by Kwan (2002) in his report, China is in fact on the traditional flying-geese development pattern.
Historically, Chinaʼs government attempted to speed up the level of development. Kwan (2002) highlighted two particular cases of such actions, the first one taking place in the 1950s under Mao Zedong (Great Leap Forward) and the second pursued by Hua Guofeng in the 1970s (Great Leap Outward). Both of these initiatives lead by the Chinaʼs government have been based on the assumption that full-scale industrialisation can be carried out at an accelerated pace by importing the latest technologies from foreign countries. Despite the theoretical soundness of these initiatives, both of them failed to achieve any significant impact on the level of development and are generally regarded as the waste of money. In essence, although the technologies have been imported into the country, China lacked the knowledge necessary to effectively use the technologies which in fact hindered the performance rather than enhanced it.
According to Kwan (2002) who contradicted the notions about leapfrogging scenarios in China, the current economic growth and business opportunities in the country are based on the countryʼs comparative advantages which can be found in terms of low cost labour. The author however suggested that although the country follows a general flying-geese model of development, leapfrogging scenarios in the future cannot be neglected.
To put it in a nutshell, the study conducted by Kwan (2002) was based on the comparison of Chinese and Japanese exports in a number of industries. The comparison of US imports based on the level of sophistication of the products revealed that China largely follows the general pattern of economic development despite its attempts to speed this process up. The findings concluded by Kwan (2002) question the exaggerated claims portrayed in the mainstream academic literature regarding the leapfrogging scenarios and the developmental pattern pursued by China.
2.2 International Trade
Over the last decades, China has achieved a significant progress in the process of liberalization of its trade barriers. Both local and global developments can be traced back in the history suggesting the creation of East Asia regional trading block (Ahn, 2004) and further opening of the Chinaʼs market (Abraham and Hove, 2005). The process of opening up the border is consistent with the overall level of globalization in the contemporary business environment and arguably presents a number of opportunities for both domestic and foreign companies. Despite the general consensus regarding the potential of this process, the existing body of literature depicts a myriad of issues in the case of China. Ahn (2004) pointed out the growing role of nationalism which hinders the formation of the East Asia trading block. Further challenges have been highlighted by Buckley (2007) from the perspective of China. The author argued that the future growth of China is constrained and that the current level of economic development of the country cannot be sustained.
The inclusion of China in the international trade agreements has created a number of challenges for both China itself and other nations. Lardy (2003) outlined the US perspective in his study and suggested that Chinaʼs opening to the international trade has created a significant amount of worries for the US. The key concern can be found in the issue of draining jobs from the US towards China due to the cost of labour. Lardy (2003) however concluded that the opportunity for the US firms to enter the Chinese market outweighs any economic impacts from the loss of jobs. Furthermore, the author suggested that this type of unskilled work has been outsourced a long time ago from the US and thus, the economy of the country is expected to benefit only from this international development.
The study conducted by Athukorala (2009) addressed the concerns of other nations in the close proximity of China. The previous literature review have emphasised the fears of crowding out referring to the fact that based on the comparative advantages of China, the countries in the East Asia region are unlikely to attract direct foreign investment. Athukorala (2009) however uncovered that the process of shifting of the production towards China in fact represents a number of opportunities for other countries in the region. Although China has become the key player in the global production networks as an assembly centre, the potential of East Asian countries to penetrate other segments of the global production networks is increased due to their proximity.
To sum up, following the years of Chinaʼs development taking place behind the closed doors, the country has began to open up its borders to the international trade. Despite a number of challenges for both domestic and foreign firms, the process is expected to benefit all of the parties involved. Drawing on the comparative advantages of the country, China has assumed a key role in the global production networks and indirectly benefited the development of the East Asian region. The following part builds on these findings and critically examines political and other issues associated with the development of China.
2.3 Political and Other Issues
Currently, the international trade and overall global order is centred towards the western economies who dictate the rules of international trade and international law. Given the recent developments in the Chinaʼs economy and Chinaʼs political position, a number of authors have raised concerns regarding its impact on the established global order (Yoo and Posner, 2006; Ikenberry, 2008; Gu, Humphrey & Messner, 2008). Mohizuki (2007) focused particularly on the evolution of the relationship between China and Japan and outlined the evolution of the friendship diplomacy towards a more hostile strategy. While traditionally, Japan was significantly more developed in both economic and political terms and was not threatened by Chinaʼs proximity, the rapid development of China has altered the strategy pursued by Japan. Mochizuki (2007) labelled this trend as a mixed strategy which revolves around both friendship diplomacy and realistic balancing. In essence, Japan has started to defend against the threat expected to come in the near future from China.
Current president of China, Hu Jintao, emphasised the peaceful nature of the development currently occurring in China (Waldron, 2005). Despite these claims, Waldron (2005) recognised that the economic development in China goes hand in hand with military development and arguably represents a threat to the established global order. Given the size of the country, its economic capabilities and military developments, the notion of the peaceful rise outlined by Hu Jintao can be questioned. China has started to assume a dominant role in the global politics by its constant membership on the Security Council.
The predictions depicted in the existing body of literature suggest the assertive role of China in the global order. The current era based on the American hegemony supported by other western nations is expected to be challenged in the near future by the rising China (Ikenberry, 2008) with a number of consequences in both diplomacy and international law (Yoo and Posner, 2006).
In conclusion, the rapid economic growth of China goes hand in hand with the increase of its political and military power. These recent developments have raised concerns about the future of the established global order. In essence, the current system dominated by the western economies is found to be unsustainable given the size, rate of progress and assertiveness of China. East Asian region has already witnessed the growing influence of China in both diplomatic and political terms which can be demonstrated by the change of strategy towards China from Japan. As a result, the presented part of the conducted literature review highlights the fact that economic and business impacts of the Chinaʼs development cannot be separated
from their political and other impacts on the global world. The following part adopts a critical perspective and provides the theoretical background for the evaluation of the Chinaʼs future strategy.
2.4 Critical Perspective
The previous parts of the literature review section have critically discussed a number of aspects associated with the rise of China. While some of the studies revolved around the examination of the benefits of this process of development for both China and the rest of the world, a number of critics have pointed out the key issues associated with this phenomenon. The aim of the final part of the literature review section is to adopt a critical perspective and investigate the key issues persisting in the country. As a result, this part provides the theoretical background for the remaining sections of the presented paper.
Although the recent development and potential impact on the international company portrayed by China is widely acknowledged in the existing body of literature, the extent of this impact can be questioned. In 1998, Segal labelled Chinaʼs economy "virtual power" referring to the exaggerated notions of the Chinaʼs importance in the global community. According to the author, China represented a large country with an incredible potential, however, this potential remained and was argued to remain unfulfilled. Similar claims have been presented ten years later by Shirk (2007) who recognised the impact of China on the international community but suggested that the country is highly fragile in its domestic environment.
These claims stem from the tension between the growing economy and inadequate developments in the political system of the country (Lai, 2010). According to Shambaugh (1994), the level of development pursued by China is highly unsustainable as it is not supported by the introduction of relevant legal measures or development of the necessary infrastructure. Both Shambaugh (1994) and Lai (2010) pointed out the end result of these imbalances between the economic growth and political development in terms of the growing social unrest. In 1989, country-wide protests have been held by the Chinaʼs citizens due to the increasing level of corruption and inflation. Although the open social unrest did not repeat itself, the dissatisfaction remains (Lai, 2010). Shambaugh (1994) suggested that the economic growth contradicted the long term development of the country and merely resulted in the great dissatisfaction, stretching of the infrastructure and growing unemployment and internal migration. In essence, the studies conducted by Shambaugh (1994) and Lai (2010) highlight the critical perspective on the rise of China and question the sustainability of the trend continuing over the recent years.
In summary, two particular aspects associated with the recent rise of China are worth of further study. First, the imbalance between economic growth and the development of the political system has been shown to lead to a number of undesired outcomes. Secondly, the failure to develop corresponding infrastructures and introduce the necessary legal measures to support the economic growth represents a key challenge in China nowadays. Overall, both of these aspects raise questions regarding the sustainability of the Chinaʼs growth in the longer term. The following section builds on the findings of the conducted literature review and provides a clear rationale for the adopted research method pursued in the final sections of this paper.
3. Methodology
This section builds on the conclusions drawn in the conducted literature review and aims to provide a clear rationale for the adopted research method. To begin with, the literature review design is discussed in the first part of this section. The second part is dedicated to the evaluation of the reliability of the data used for the purpose of the presented study and examination of the potential weaknesses and shortcomings of the conclusions drawn. The third and the final part outlines the data analysis process which provides the basis for the following section.
3.1 Literature Review Design
The key issue raised in the conducted review of the existing body of literature on the rise of China relates to the tension between the economic growth and political and infrastructural developments. While Chinaʼs economy has been growing rapidly over the recent years, the corresponding developments in terms of the infrastructure and legal systems have been left behind. As a result, a number of authors have raised questions regarding the sustainability of the current growth pursued by China.
In order to critically evaluate the studied phenomenon, two particular variables are taken into consideration. On one hand, the gross domestic product represents the economic growth in China. On the other hand, KOF globalization index developed by Dreher (2006) and its particular elements - political, social and economic, are used to demonstrate the level of development in terms of the underlying infrastructure. A longitudinal approach to the study is adopted in order to avoid biases of unexpected shocks to the economy which may results in the incorrect conclusions drawn by the author. As a result, the literature review period spans from 1981 to 2008 and thus covers the period of the last three decades.
The aims of this literature review are two-fold. First, the analysis encompassed in the following section aims to highlight the overall trends in the development of China with respect to the studied variables. Secondly, the inter-relations between the particular variables are examined and the strength of the relationships between the variables is tested.
3.2 Data Sources
In line with the literature review design discussed in the previous part of this section, two general types of variables have been included in the analysis stage - KOF globalization index and gross domestic product. The historical figures for KOF globalization index have been obtained from the official sources (KOF Index, 2012) and all of the elements of the index have been included in the analysis - political globalization, social globalization, economic globalization and overall globalization index. As for the gross domestic product, the official figures have been obtained from TradingEconomics.com (2013).
Overall, the presented study relies on the use of secondary sources of data which arguably represents the key limitation of the study. Secondary data have been demonstrated to have their weaknesses in terms of the researcher's inability to test their accuracy and therefore, the assumptions regarding the validity and reliability have been taken.
3.3 Data Analysis
The data collected for the purpose of this study are from the period between 1981 and 2008 and encompass all elements of the KOF globalization index (political, social, economic and overall) obtained from KOF Index (2012) and the gross domestic product figures obtained from TradingEconomics.com (2013). The data analysis stage makes full use of both descriptive and inferential statistical methods. For the purposes of the statistical analysis, two software packages have been used. A spreadsheet program (Numbers for Mac OS) was utilised to draw relevant charts in order to depict the overall trends of the particular indices. Moreover, statistical software package SPSS version 19 for Mac OS has been used to conduct inferential analysis. Pearsonʼs correlation test was used to test the significance of the relationships between the particular variables. Full results of the conducted statistical test can be found in Appendix A.
4. Results and Findings
This section of the presented paper aims to strictly follow to literature review method discussed in the methodology section and present the findings in a clear and logical manner. The section itself is split into two parts. The first part deals with the descriptive analysis of the studied variables and examines the overall trends in the globalisation indices of China and its gross domestic product. The second part builds on the conclusions of the first part and investigates the relationships between the key variables studied. For the purposes of the analysis, Pearsonʼs correlation test full results of which can be found in Appendix A has been conducted to demonstrate the strength of the relationships between the particular variables.
4.1 Trends in Globalisation and Economic Growth
In 2012, the overall KOF globalisation index for China was 59.37, however, significant differences between particular elements of the index can be found. While the index of political globalisation placed China on the 41st place in the global ranking (index of 86.70), the social globalisation index of 48.09 and the economic globalisation index of 51.25 ranked China on 93rd and 107th place, respectively (KOF Index, 2012). The historical trends in the evolution of the globalisation indices of China are depicted in Figure 1 below.
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Figure 1: Historical trends in the KOF globalization indices (source: KOF Index, 2012)
An overall growing trend of all three elements and the overall globalization index are shown in Figure 1 above. The period of slow to moderate growth between 1980 and 1990 was followed by a rapid development from 1990 onwards. Paradoxically, in year 2007, a significant decrease in the index of social globalization can be observed from Figure 1 above.
4.2 Relationships between Variables
Figure 2 below depicts the annual percentage changes in the individual elements of the KOF globalization index.
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Figure 2: Percentage changes in the elements of the KOF globalization index (source: KOF Index, 2012)
As shown in Figure 2 above, a relatively stable general trend of development of particular elements of the KOF globalization index can be associated with China. Three exceptions can however be found in Figure 2 - period 1988-1990, period 1996-1998 and period 2007-2008. In the first period, 1988-1990, both social and political globalization increased substantially compared to the percentage change of the economic globalization. A similar trend can be observed in the period of 1996-1998 in the case of social globalization. These irregularities stem from the periods of social unrest in China as discussed in the literature review section which have been followed by rapid developments in this sector. Finally, a significant decrease of the social globalization can be found in the period of 2007-2008.
Overall, the conducted Pearsonʼs correlation test, full results of which can be found in Appendix A, revealed a statistically significant correlation between all of the elements of the KOF globalization index. As a result, the general pattern of development suggests that economic, social and political aspects of globalization and thereby the development of China are aligned.
Moreover, the conducted Pearsonʼs correlation test also revealed a statistically significant correlation between the KOF globalization index and the gross domestic product of China. As shown in Figure 3 below, the annual percentage changes of economic globalization index and gross domestic product differ quite significantly, however, the general pattern is strongly correlated.
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Figure 3: Percentage changes in the economic globalization index and GDP (source: KOF Index, 2012; TradingEconomics.com, 2013)
As a result, the analysis and findings encompassed in this section challenge the views of the critics outlined in the literature review section who claimed that the level of economic growth does not go hand in hand with adequate improvements in social aspects. The results of the conducted Pearsonʼs correlation test suggest that a statistically significant correlation exists between the studied variables and thereby, the level of economic growth is fully supported by the increasing level of political and social aspects.
5. Discussion and Conclusions
The aim of the presented study was to critically examine the issues surrounding the rise of China. Over the recent decades, the level of China's economic development has surpassed any other economy in the world. Furthermore, with respect to the size of the country and its international role, the rise of China is widely acknowledged to represented to most significant aspect of the 21st century in the global economy. The existing body of literature review on the studied topic is found to be largely fragmented and the views portrayed by individual authors are often contradictory. While some of the studies have focused on the international impacts of the rise of China, other authors have questioned the sustainability of the rapid development in the long run.
Callahan (2005) argued that the rise of China is highly exaggerated in the existing body of literature review. This stream of literature review is primarily built around the notion of the tension between the level of economic growth and corresponding social and infrastructural developments which are considered to be lagging. Over the recent years, China has began to open up its borders to the international trade. Despite the ongoing academic debate regarding the implications of this strategy for all parties concerned, a myriad of benefits can be associated with this phenomenon from both the domestic and international perspective. The key issue highlighted in the existing body of knowledge can be found in its impact on the international law and global order which has been dominated by the western countries in the past decades.
The discussion encompassed in the literature review emphasised the growing economy of China on one hand, and the lagging infrastructural and social aspects on the other hand. The analysis provided in the previous section aimed to critically address this debate and using the data from KOF globalisation index, the analysis revealed a statistically significant correlation between the individual elements of the KOF globalisation index. Although substantial differences still exist between the political, economic and social aspects of the Chinaʼs development, all of the studied variables are found to be gradually evolving which contradicts the claims that social and infrastructural aspects are largely neglected. Their current level lags behind the level of Chinaʼs international growth, however, the continuous development of these elements supports the notion regarding sustainability of the Chinaʼs growth.
From a critical standpoint, the analysis revealed a significant drop in the level of social globalisation index between 2007 and 2008. This trend requires further attention from the academics and policy makers in order to align the individual forces behind the rise of China.
5.1 Limitations
The key limitation of the presented study can be found in its reliance on the secondary data. The practical impacts of this limitation can be found in the arguably limited validity and reliability of the data included in the analysis. However, it needs to be pointed out that the analysis of macro-economic variables is hardly possible without reliance on the secondary data and therefore, particular strategies to minimise the risk of
limited data validity and reliability were adopted instead of the researcher aiming to follow a different path. These strategies included the selection of official sources of data and their prior analysis with respect to their validity.
5.2 Further Research
The topic of the rise of China has attracted a significant amount of attention from academics, policy makers and practitioners. The rapidly growing economy of this size can be seen in a dual way. On one hand, a number of opportunities can be associated with this trend. On the other hand however, the global order and international law are likely to be affected to some extent. The presented paper challenged the proponents of the view that the current rise of China cannot be sustained due to the tension between economic growth and the level of infrastructural and social aspects. As a result, further research should concentrate on the practical implications of the rise of China in the international domain.
