Subject to UOW Approval

Assignment No :One : Due – 12 OCT 2010

Assignment weighting : 50 %
Instructor: Pradeep Bhatia
Contact: pbnideas@yahoo.com

Students are required to fill out this front cover sheet before submitting
their assignments into the Digital Drop box of Black Board

Semester Long
Assignment Title: Assignment No: 3
Individual Project

Student Name: Maaz Khan THINC Student ID:4083008

Programme: BBA Semester: Summer

UOW Student ID: Date Issued:

Date Due in: Assignment Set by:

Date Actually Handed in: Grade Awarded:

Learning Outcomes Met: Previewed By:

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 Instructor’s Comments:

Criteria for marking Max Marks Marks Remarks

Obtained
Objectives of assignment
10
understood and met
Quality of Research with
Evidence of background
40
reading and integration of
literature
Comprehension and analysis
of subject area including
30
issues involved and flow of
argument
Presentation including quality
10
of referencing
Validity of
10
conclusions/recommendations
Total 100 0

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 Contents

Topic Page

Globalization

Legal Environment

Political Environment

Economical Environment

Exchange Rates Policy

References

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Globalization

China once used to be against globalization and a disrupter of the global

institution, but now has become a committed member of these institutions and an
supporter of globalization. Its economy is now a far more open economy and its
institutions are globalizing to an extent not seen in a big country. Adoption of
foreign education, common use of English, adoption of law, commitment to
competition and of many foreign institutions and laws are not just updating
institutions of China but also its civilization.

The economy of China has gained success through liberalization and

globalization. It is the only country whose workers have rapidly improved their
standards of living. China has also become an ally of Southeast Asia and U.S. in
promoting free trade and investment.

However, China has faced some serious downfall in order to rapidly globalize.
Some of the downfalls are as below;

• Loss of 25million manufacturing jobs.

• State enterprise employment declined by 45million.
• More than 125 car companies are forced to merge in 3-6 car companies.

Although, China has joined late, it has joined with much more enthusiasm that
any other country. Chinese economy is much more open than Japan. For
example, in 2004, 70% of Chinese GDP was its trade, whereas Japan’s trade
was equal to 24% of its GDP. Again in 2004, China received $60 billion of FDI,
but Japan, with a larger economy received FDI of only $20 billion.

On the other hand, China is experiencing globalization of tastes as well. The

Chinese population has integrated into the global culture through the exposure of
foreign brands. Two decades ago, none of the American or European cars were
seen on the roads of China, but now roads are packed with them. China is the
only country to experience such hasty improvements in working conditions and
living standards. Before China entered globalization, its workers used to wear
same clothes daily, hardly owned basic appliances such as watches, TV and
starvation was common everywhere. Globalization has changed all this, workers
wear good clothes, own more than just a television at home and starvation has
vanished. WTO has played a very important part in the emergence of China at
the start of the 21st Century. 21 years after the normalization of diplomatic
relations between U.S. and China, it has now established a permanent trade
relationship between them. China is now known by the world economic
community and the U.S. as an equal partner. Since globalization, China is now
an important part of the global economy and world economic community. China’s
market is now more open for international trade and investment, and the world’s
economy is open for China’s exports.

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Legal Environment

In the last 20 years, several new commercial laws regarding bankruptcy,

behavior of banks, corporate behavior, and other financial institutions have been
passed by the Chinese People’s Congress. On the other hand, they have also
improved and modernized the Chinese judicial system for law enforcement. With
the number of lawyers, practicing of litigation has also increased. Including
175,000 lawyers and 130,000 judges, the number of legal personnel had gone up
to 305,000 by 1999. Globalization had a positive effect on China’s legal system,
as it is going to frequently deal with foreign firms. Unfortunately, Chinese people
do not care about the laws regarding matters related to business and money,
although they respect the criminal laws.

It is very difficult to change the legal behavior of Chinese people as they follow
cultural and historical tradition which can hardly be affected imposing new laws,
courts, procedures or enforcement systems. Chinese people have always given
more importance to their ethics and culture than the laws. Even in school,
Chinese children are taught to obey cultural and ethical rules more than the law.
Even the settling of disputes is guided by Confucian ethics instead the legal
system. In most of the cases, an oral agreement without court’s enforcement
used to be sufficient. Mediation by elders in a traditional social network replaced
the settlement by courts and lawyers. In 1978, when China attempted to join the
international economic community and to modernize, the government attempted
to modernize the legal system.

Since 1978, China’s legal system faced some changes in the law enforcement
system and legislation of many new laws in order to properly run the market
economy. The legislation system has become less prone to political influence
and more effective than before. The legal behavior of Chinese people has also
started to change as they have started settling their disputes using legal systems
instead of informal social channels. As globalization has improved their standard
of living, they have become more law abiding. Earlier the society was ruled by
people instead of laws. Today, it is considered supreme to be loyal to the
Communist party and leaders under the one-party rule. Chinese people have
sued their government several times for violating their personal and economic
rights which are protected by the law.

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Political environment

If a government is considered to have three branches, it legislative and judicial

branches are part of both political and legal institutions. The Communist Party
and the Government will both affected by any change in the economic branch or
the above two branches. It is clear that the goal of the current Communist Party
is to promote democracy. The Chinese Government has made more progress in
developing its market institutions than developing its democratic institutions.
Between 1911 and 1949, there was no political stability to develop democratic
institutions as different political parts were struggling for power. Since 1949, the
ruling of Communist Party imposed both negative and positive effects on the
development of democratic institutions.

The Communist Party was given political stability under an integrated

government in 1978 and it has led China through successful reforms using the
incompetent economical institutions it developed. Since then the party has
provided favorable economic support to the development of democratic
institutions. Though, the one party rule has destroyed some of the initial
democratic growth under the Republic of China.

Progress towards economic development was more than the progress towards
democracy in China. The People’s Congress’ representatives have always been
indirectly elected. The lowest level representative in city blocks or villages are
publicly elected and higher level representative are elected by and from the
representatives at the level immediately below. Experts in the Congress were
required by the new legislation to form committees of specialists to plan the law.
Elections for government officials in thousands of villages of China have started
to take place. Many public services such as protection of public land and public
security; administered by the Communes were neglected, after the abolishment
of the Commune system in 1980s. To make sure that such services are provided,
people in villages decided to elect their government officials publicly in a fair and
open manner. Chinese people are happy with their economic conditions.

It is expected that as Chinese people become more educated and richer, they
are going to be more interested in taking part in democratic activities. However,
the demand for democratic institutions has increased and is going to continue to
increase. A small number of people are a little dissatisfied by economic disparity,
unemployment and corruption, which is not enough to generate political
disruption at a national level. Democratic institutions will only be accepted if
these political institutions are not threatened.

Top Chinese political leaders have traveled abroad to learn how modern
democratic institutions work. The changing environment doesn’t allow the
political control to manipulate the news anymore as the news media technology
now includes TV and radio receptions from internet, Taiwan and Honk Kong. The

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population will now demand more democratic institutions and will demand the
government to promote these democratic institutions.

Globalization has increased the supply and demand of the democratic

government in China. The economic modernization and economic development
was made possible by globalization which increased Chinese people’s interest in
a democratic government. Globalization has also made the leaders modern
oriented and global. Therefore, when the rules are set by WTO for all the
economic transactions, there will be less corruption. Keeping in mind the impact
of traditions in China, effects on the political institutions have been positive.

Exchange rate policy:

According to most systems, Chinese currency remains undervalued. Over the

past 2 years, Chinese account surplus improved rapidly from 1.5% of GDP in
2001 to 3.2% GDP in 2003. On the other hand, China went through a trade
surplus of $25.5 billion in 2003 to $32 billion in 2004. However, the Chinese
economy has been growing at an unsustainable and record-setting pace. This
high growth has led to an extraordinary demand for imports of more than 40
percent, making it the world’s 3rd largest importer in 2003. In 2004, imports grew
a further 36 percent.

China has a fixed exchange rate policy. It does not change its fixed exchange
rate policy although it is holding back job growth in the United States. China’s
growth rate rose to 9.3%, the highest rate since the Asian financial crisis. It is
very surprising that they are unwilling to adjust the exchange rate, given the rate
with which they used to revalue their exchange rates in 1980s and 1990s. Fixed
nominal exchange rate defenders cite the need for stability as the main reason
for changing the rate.

Since 1978, when the economic reform began, China has made many
adjustments in its exchange rate. In 1981, the value of Yuan was cut by half in
trading transactions, which was the result of having an internal settlement rate of
2.8 Yuan to the dollar while the official rate was 1.5. The official rate was
depreciated from 1.5 to 2.8 from 1981 to 1984. By 1986, the official rate further
devalued to 3.2. Later in 1986, the value was decreased by 15% to 3.7 to the
U.S. dollar in a single step. Following this, the authorities allowed the exporters to
keep a significant portion of their foreign exchange earnings and introduced a
secondary market where they could sell these earnings at a market-driven price.
Later in 1989, the currency was again devalued by 21.2% by the authorities.
Later, after few years, the exporters were allowed to keep a larger amount of the
foreign exchange earnings and transactions in the secondary market expanded.
In 1994, both of the rates were unified and after that the Yuan began to
appreciate gradually and reached a value of 8.28 by 1995.

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Since 1995, the nominal rate has continued to stay fixed; Yuan’s value on a real
trade weighted basis has kept changing as follows:

• From 1994 to 1997, Yuan appreciated by 1/3rd

• From 1998 to 1999, it showed depreciation by 14%
• From 2000 to 2001, it again showed an appreciated of 13%
• From 2002 to 2003, it depreciated by 10%

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References:

• Dr. Jian Chen. (2003). China and Globalization. Available: http://www.chinese-

embassy.org.uk/eng/dsjh/t27161.htm. Last accessed 10th Oct 2010.
• Xinhua. (2010). How far will China go for yuan globalization?. Available:
http://www.chinadaily.com.cn/bizchina/2010-03/13/content_9585968.htm. Last
accessed 10th Oct 2010.
• Lee Branstetter, Nicholas Lardy. (2006). China's Embrace of Globalization.
Available: http://www.nber.org/papers/w12373. Last accessed 12th Oct 2010.
• Francesco Sisci . (2010). Globalization yet to have its day . Available:
http://www.atimes.com/atimes/China/LC26Ad02.html. Last accessed 10th Oct
2010.
• Xinhua. (2004). China sees changes in economic environment. Available:
http://www.chinadaily.com.cn/english/doc/2004-04/09/content_322036.htm. Last
accessed 10th Oct 2010.
• Agencies. (2010). China Premier: economic environment 'complicated'.
Available: http://www.chinadaily.com.cn/china/2010-
07/05/content_10055926.htm. Last accessed 11th Oct 2010.
• Juan Antonio Fernández. (2008). The Chinese Economic Reform. Available:
http://www.ceibs.edu/ase/Documents/reform.htm. Last accessed 10th Oct 2010.
• Shunsuke Managi, Shinji Kaneko . (2006). Economic growth and the environment
in China: an empirical analysis of productivity. International Journal of Global
Environmental Issues. 6 (1), 89-133.
• Steven Dunaway. (2010). China's Exchange Rate Policy: The Heat Is On.
Available:
http://www.cfr.org/publication/21455/chinas_exchange_rate_policy.html. Last
accessed 10th Oct 2010.
• Geng Xiao. (2010). China’s exchange rate policy and what it means for the
dollar . Available: http://whatmatters.mckinseydigital.com/currencies/china-s-
exchange-rate-policy-and-what-it-means-for-the-dollar. Last accessed 10th Oct
2010.
• Yiping Huang, ANU. (2009). http://www.eastasiaforum.org/2009/02/22/chinas-
exchange-rate-policy-dilemma/. Available:
http://www.eastasiaforum.org/2009/02/22/chinas-exchange-rate-policy-dilemma/.
Last accessed 11th Oct 2010.
• Wu Xiaoling. (2007). China's Exchange Rate Policy. Available:
http://www.petersoninstitute.org/events/event_detail.cfm?EventID=47. Last
accessed 12th Oct 2010.