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Global consequences of Chinese growth: Impact on the world economy

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  1. Introduction
  2. China's foreign trade
    1. China's gains of market share as regards to the rest of the world
    2. The opportunities offered by a booming domestic market: Global growth is fueled by China's growth
  3. Does China export inflation or deflation?
    1. China has supported the global disinflation for fifteen years
    2. Globalization is less conducive to disinflation today
    3. Is China a source of inflation ?
    4. The consequences of higher prices on the economies of other countries
  4. The financial impact of China on the world
    1. The accumulation of foreign exchange
    2. China's policy of intervention in the foreign exchange market.
    3. Chinese SWFs

Over the past decade, the People's Republic of China has been pursuing an average annual growth of 9%. It has now become the 4th largest world power after the United States, Japan and Germany, but ahead of France and the United Kingdom.
However, China currently accounts for only 5% of global GDP.

The rise of China has several implications for the global economy. Indeed, China aims to grow as strong and for as long as possible. However, this legitimate goal of China and its applications can sometimes differ from the global goals of financial and economic stability.

We have divided our analysis into three parts to identify the implications of Chinese growth over the rest of the world:
- The first part deals with the volume effect of China, especially in terms of gains of market share in exports and the spillover effects on world growth-related imports.
- The second part focuses on the price effect of China on the world especially in terms of higher commodity prices and deflation in the countries, which leads to higher wages.
- The third part highlights the financial impact of China, particularly through its exchange rate policy, and its effects in terms of global liquidity and reserve accumulation.

Finally, to conclude, we will try to determine the advantages and disadvantages of such growth, and to determine the ability of the global economy to absorb global growth.

The opening of China is a mixed blessing, since the company is a producer of primary importance, and therefore an extremely powerful competitor. At the same time it is also a vast market in which the world can sell its surplus production.
In this document we focus on the implications of Chinese growth on the global economy in terms of quantity and volume.

Specifically we will analyze:
-Gains of market share in world trade vis-à-vis developed countries and other emerging countries which is negative for the rest of the world, and relate to issues of competitive advantage, FDI and relocation of global industrial production;
- Strong growth in imports from China, which is favorable for many countries which are trying to specialize.

Labor, particularly unskilled labor, is very cheap in China. For example, the average salary in dollars in the manufacturing sector is fifty times lower than in France, and the differences are still higher for the relatively unskilled laborers. By contrast, China is characterized by very low productivity.

Taking into consideration the wage cost per unit (CSU) to report the cost of labor in worker productivity as an indicator of competitiveness, we can consider that the competitiveness of a country increases when productivity is increasing, the labor costs in local currency decrease, and / or the local currency depreciates against the dollar.

Compared with France, the Chinese CSU is 3 times lower. Such differences reflect the fact that wage differentials between employees are very high. The French and Chinese employees are only slightly offset by the differences in productivity. One is forced to say that China is more competitive than France in the sectors requiring intensive labor, largely due to its low cost labor.

Tags: Chinese economic growth, cheap labor in China, world growth-related imports

[...] Despite the rhetoric that we hear about unfair competition from the "Made in China" goods, it goes without saying that the Western economy is ready to cash in on the sharp rise in costs of Chinese imports, which is the result of an increase in purchasing power, which is a major problem in industrialized countries. To summarize, the analysis suggests that the export supply from China imparts a downward pressure on the prices of consumer goods, while the increasing demand for imports from that country pushes up the raw material prices in the world. [...]

[...] - "The effect of the emergence of China on Global Prices - : "Towards an intensification of global inflationary pressures?" - : "Globalization and Monetary Policy" - : "The china source of global inflation after 2010" - : o "China, third world economy" o "Sovereign funds, new enfant terrible of finance" o "Accelerating the growth of China and the creaking of the harmonious society" - "China at the heart of global growth" - : "Outlook for global economy," - "trade between China and France" - (French government site) - "origins and consequences of capitalist restoration in China" - : "China in the Global Economy - : "China and the rest of the world" - : o "What is the impact of WTO on technology transfer in China" [...]

[...] The impact of Chinese exports on global prices Chinese exports of manufactured goods have exploded in recent years. The findings related to this phenomenon are that: Consumer prices in China have stagnated or declined for several years, suggesting that export prices have fallen too. This may be due to the development of the production technique. Also, the country's foreign exchange reserves are enormous, especially in Dollars, suggesting that Chinese policy is a policy of offering. Thus, it is possible to analyze the different channels of the impact of exports on global prices: - on the side of supply, imports from China could lower prices of production without harming the domestic activity and profits; - on the side of demand, lower Chinese prices could reduce the market share of domestic producers and thus result in lower wages and affect the domestic prices of production. [...]

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